Baroness Fritchie

Dame Irene Tordoff Fritchie, DBE, having been created Baroness Fritchie, of Gloucester in the County of Gloucestershire, for life—Was, in her robes, introduced between the Baroness Cumberlege and the Lord Wilson of Dinton.

Lord Anderson of Swansea

The Right Honourable Donald Anderson, having been created Baron Anderson of Swansea, of Swansea in the County of West Glamorgan, for life—Was, in his robes, introduced between the Baroness Andrews and the Lord Morris of Aberavon.
	Lord Haskins—took the Oath.

Export Control Organisation

The Lord Bishop of Winchester: asked Her Majesty's Government:
	What assessment they have made of the implications for the effectiveness of United Kingdom arms export controls of their plans to privatise all or parts of the Export Control Organisation.

Lord Sainsbury of Turville: My Lords, the department has carried out a major assessment of outsourcing all or parts of the Export Control Organisation, including its effectiveness. A decision has been made and an announcement will be made later this week in the House of Commons.

The Lord Bishop of Winchester: My Lords, I am grateful to the Minister for that Answer, following our conversations yesterday evening and this morning. I shall watch for the promised Statement with a lot of interest and shall save further questions until after I have read it.

Lord Sainsbury of Turville: My Lords, I thank the right reverend Prelate for that very helpful comment. I am sure noble Lords will appreciate that I cannot say what decision has been taken. I cannot defend it, nor can I say that I shall take account of the views of the House, because we have already made a decision. Other than that, I shall try to be as helpful as I can.

Lord Garden: My Lords, in that respect, can the Minister tell me whether he agrees personally with the Quadripartite Committee's report, when it said:
	"There is a very fine line between optimal efficiency and needless risk and the Government must not cross it."?
	Can he assure us that the Statement on Thursday will ensure that enough elements of the Export Control Organisation are preserved that he does not cross that line?

Lord Sainsbury of Turville: My Lords, I can agree with the first statement, as it is obviously a statement of fact. On the second, the noble Lord will have to wait to see what the decision is.

Baroness O'Cathain: My Lords, what does the Minister mean by saying that he is going to make a Statement but that he is not going to take any notice of the feelings of the House? That is pretty outrageous. The right reverend Prelate has been very gracious in saying that he was not going to ask any more questions, but I want to ask more. Why do we not have any locus in this matter?

Lord Sainsbury of Turville: My Lords, I should not want to mislead the House by saying that we will take account of noble Lords' views when a decision has clearly been made which we are going to announce on Thursday. It would be pointless and dishonest to say that we were going to take account of them. We have considered all the arguments, we have consulted widely, and we have taken a decision which we shall now announce.

Lord Campbell-Savours: My Lords, what has happened to the proposals for the Defence Export Scrutiny Committee? Are they still in the long grass?

Lord Sainsbury of Turville: My Lords, I believe that those issues are still being considered. I do not know whether my noble friend would describe that as being in the long grass—but I shall check that point and come back to him.

Baroness Miller of Hendon: My Lords, if the decision has already been made—and the Minister made that quite clear—can we have any idea when it will be announced, and indeed whether it will actually be announced in this House as well? We are at the end of the Session. Will it be announced before the end of the Summer Recess, as one of my noble friends has just suggested over my shoulder? I have a wonderful question that would really floor the Minister, but under the circumstances it would be foolish to ask it.

Lord Sainsbury of Turville: My Lords, it will be announced later this week in the House of Commons. As soon as the announcement is made, I shall make sure that your Lordships are notified.

Lord Hylton: My Lords, have the Government fully considered the risks of conflict of interest if this vital function is either wholly or partly privatised?

Lord Sainsbury of Turville: My Lords, yes, obviously.

Lord Howarth of Newport: My Lords, does my noble friend consider that Britain's presidency of the G8 will provide an excellent opportunity for the Government, in the spirit of responsibility and practicality that he has anticipated, to encourage other wealthy industrial countries to pull back, as we have done, from the twin unhappy policies of flooding third world countries with weapons while draining them of their qualified medical people?

Lord Sainsbury of Turville: My Lords, those are interesting questions but I cannot see that they have any relevance to this issue, which concerns the Export Control Organisation and the outsourcing of it. I do not think that they affect that.

Lord McNally: My Lords, the right reverend Prelate the Bishop of Winchester showed a great deal of Christian charity as regards the Minister's reply. If the Minister has the decision ready, why did he not announce it to the House today? If it is to be announced in another place on Thursday, will he give an assurance that he will make a Statement in this House on Thursday as there is clearly much interest in this topic in all parts of the House?

Lord Sainsbury of Turville: My Lords, I agree that the right reverend Prelate the Bishop of Winchester showed great Christian charity. That was after we had had a very lengthy discussion on the nature of the decision. I very much welcome that Christian charity which is much appreciated in these circumstances, and which we thought would end all further questions on this subject. The decision will not be announced immediately as there are some process points that have to be gone through. As with any decision of this kind a number of process points have to be gone through before we can make the announcement.

Baroness Symons of Vernham Dean: My Lords, irrespective or whether this function is to be privatised—many of us very much hope that it will not be privatised—will the Minister indicate whether that will make any difference to the criteria used for the export of arms? Essentially, those criteria prohibit such exports if it is believed that they would add to internal repression or external aggression in any country. Many of us want those criteria to be maintained.

Lord Sainsbury of Turville: My Lords, I can give the noble Baroness a clear assurance that it will make no difference whatever to the criteria.

Lord Roper: My Lords, will the Minister reply to my noble friend Lord McNally's question as to whether we can have a Statement on Thursday?

Lord Sainsbury of Turville: My Lords, we should wait until noble Lords hear what that Statement is.

Noble Lords: Oh!

Lord Sainsbury of Turville: My Lords, noble Lords will then understand that the response to that question will depend upon the nature of the Statement.

Lord Hughes of Woodside: My Lords, is it not the case that on Thursday it will be up to the official Opposition in this House to ask for the Statement to be repeated here?

Lord Sainsbury of Turville: My Lords, clearly that is the formal position.

Visa Regime: Croatian Nationals

The Earl of Dundee: asked Her Majesty's Government:
	When they plan to abolish the visa requirements for Croatian citizens who wish to visit the United Kingdom.

Lord Bassam of Brighton: My Lords, all visa regimes are kept under review and introduced or lifted on the basis of immigration need. I can confirm that the visa regime on Croatian nationals is the subject of a continuing review. However, it would not be appropriate for me to make public our thinking with regard to specific visa regimes in advance of any decision, as that could give rise to false expectations.

The Earl of Dundee: My Lords, I thank the Minister for that reply. I declare an interest as chairman of the British-Croatian All-Party Parliamentary Group. Does he agree that the abolition of visa requirements for Croatian citizens by all European states except for ours reflects their confidence that democracy and human rights now apply in Croatia? Yet, in view of our support for the prospect of an early date for Croatia's negotiations to join the European Union, would it not be fitting and timely to abolish our visa requirements in the near future and during the current British presidency of the EU?

Lord Bassam of Brighton: My Lords, as I made plain in my Answer, it would be inappropriate for me to speculate on a timetable for a definite review point, but I can repeat to the noble Earl that the position of Croatian nationals is under continuous review and I certainly agree that there has been some considerable improvement in the number of asylum claims from Croatia since 2000. I am sure that some conclusions can be drawn from that. The application of the visa regime has been extremely effective and valuable.

Baroness Gardner of Parkes: My Lords, have the Government considered abolishing this year the visa requirement for those Commonwealth citizens who fought for this country in the Second World War? If not, will they do so? There is great bitterness about that and this would be an appropriate year in which to do so, given that only a small and declining number of such people survive. It would be nice if the Government did that before VJ Day in August. Will the Minister pass on that message, because people feel that if they have offered their lives for this country, they should at least be able to visit without such restrictions?

Lord Bassam of Brighton: My Lords, certainly, I understand and sympathise with the spirit of the noble Baroness's question and I shall happily endeavour to pass on her views. I understand where she is coming from.

Lord Dholakia: My Lords, is the Minister aware that the European Union has praised the government of Croatia for their social and economic reforms and that Britain is now the only country in the EU that has a visa regime in relation to Croatia? Given that it is no longer the case that Serbian nationals living in Croatia are applying for asylum in this country, does the Minister think that the review should be completed as soon as possible so that the visa requirements from Croatia are removed?

Lord Bassam of Brighton: My Lords, I am of course aware that we are the only EU country which currently applies a visa regime. The points the noble Lord has made will be actively considered as part of the continuing review process.

Baroness Seccombe: My Lords, two years ago, in 2003, the Prime Minister proposed establishing a Croatian camp to process British asylum applications. How is that initiative progressing?

Lord Bassam of Brighton: My Lords, I am not in a position to provide the noble Baroness with that information but I will happily write to her and ensure that a copy of that correspondence is placed in the Library of the House.

Lord Lester of Herne Hill: My Lords, as I recently visited Zagreb to give advice to the government of Croatia on human rights matters, may I briefly say that I entirely support the Question asked by the noble Earl? I believe that it would be a great shot in the arm if a country such as Croatia—which has been democratising, has independent judges, is upholding the rule of law and is far away from the tragic events of 2000 and the disintegration of the former Republic of Yugoslavia—were now recognised and if, like everyone else, we welcomed its citizens without this strange, continuing visa regime.

Lord Bassam of Brighton: My Lords, the noble Lord is right to point to all those issues, which will be actively considered as part of the continuing review process. For reasons which I am sure he will well understand, I cannot comment precisely on that process.

Baroness Whitaker: My Lords, would my noble friend prefer that the Croatian Government would yield up General Gotovina to the War Crimes Tribunal?

Lord Bassam of Brighton: My Lords, that would be highly desirable.

Lord Kilclooney: My Lords, would the Minister confirm that some of the independent states which were formerly part of the Republic of Yugoslavia have been sources of supply of illegal armaments to terrorists in the United Kingdom? Is Croatia one of those countries?

Lord Bassam of Brighton: My Lords, it would be unwise and inappropriate for me to comment on a question which is wide of the Question on the Order Paper.

Social Mobility

Baroness Oppenheim-Barnes: asked Her Majesty's Government:
	Whether they will publish a response to the report by the London School of Economics on intergenerational mobility in Europe and North America in April 2005.

Lord Adonis: My Lords, we do not respond formally to such research reports, but its main finding, that social mobility slowed in Britain from the 1970s to the 1990s, is well established. The most recent data in the report relate to children born in the late 1970s and early 1980s who had undertaken most if not all of their schooling by 1997. Our policies on education, training, childcare and employment are all geared to improving the rate of social mobility and there is encouraging evidence of progress.

Baroness Oppenheim-Barnes: My Lords, I thank the noble Lord for that reply and for his astuteness in mentioning 1997. The fact remains that the decline referred to in the report continues. One of the main reasons for the gap in potential earnings between poorer children and children from better-off families is the decline in the number of grammar school and assisted school places. As a result of that, will the Government now allow those successful schools to expand and abandon schemes for city academies, for instance, which are not proving to be all that successful?

Lord Adonis: My Lords, I hardly know where to start in replying to the aspects of the noble Baroness's question, which are contentious. On grammar schools, the report of the London School of Economics, which gave rise to her Question, found that the countries with the highest rates of social mobility—namely, Sweden, Norway and Finland—have non-selective school systems. She will also note that in this country there are only 160 grammar schools—the Government are leaving local communities to decide their future—and that of the pupils of those schools only 2.2 per cent are in receipt of free school meals and come from poorer backgrounds as against 14 per cent in secondary schools at large. Therefore, as agents of social mobility, this is not one of their strongest suits.
	However, we believe that the reforms we are putting in place for education are helping those who are least advantaged in our society. The evidence of test and examination results bears that out. So I hope that the noble Baroness will be able to celebrate with this side of the House the progress we are making to improve social mobility in the years ahead.

The Earl of Listowel: My Lords, does the Minister agree that still better support for children in local authority care would contribute to social mobility? Is he aware that in England alone there is a shortage of 10,000 foster carers?

Lord Adonis: My Lords, I agree with the noble Earl. We hope that the reforms we are putting in place will improve the number of carers and the support which they receive. The noble Earl will agree that the support we provide for under-fives is absolutely crucial in ensuring that all children have the best start in life. We have trebled spending on support for the under-fives; and our reforms in that area are widely praised.

Baroness Buscombe: My Lords, notwithstanding that the Minister has already said that the Government will not respond to the report, to what extent are the Government evaluating schemes such as Sure Start and the educational and maintenance allowance to assess their impact on social mobility in Britain?

Lord Adonis: My Lords, we are evaluating those schemes. We shall publish an evaluation of Sure Start soon. The policy on educational maintenance allowances was extensively piloted before we introduced it nationally. It showed a significant improvement on rates of staying on beyond the age of 16, which of course will help the cause of social mobility.

Lord Wallace of Saltaire: My Lords, will the Government take the opportunity to say how much they welcome these sorts of reports from academic institutions and think tanks? I declare a double interest as a former member of the staff of Chatham House and a member of the staff at the London School of Economics. We have noticed a tendency in recent months for the Government to attack independent reports that they do not like from such institutions. Would the Government merely like to say that the contribution to democratic debate which reports of this quality make is something that all of us—government as well as opposition—should welcome?

Lord Adonis: Yes, my Lords.

Lord Giddens: My Lords, this report has been completely misunderstood by many people. I declare an interest as a former director of the London School of Economics. Social mobility data always refer to the past. The cohort referred to in the report was born in 1970—35 years ago. Whatever happened to them in their childhood happened to them in the late 1970s and the 1980s. Will the Minister reaffirm his support for government policies for early intervention for children? Is he prepared to consider further radicalising those policies? In addition, will he take note of the comment at the end of the report asking the Government to evaluate in a systematic fashion the policies that are already in place?

Lord Adonis: My Lords, I can reply "Yes" to all those questions from my noble friend. So far as concerns our further support for under-fives and that part of the age range, we already have 500 Sure Start programmes in existence and 288 children centres. We intend to create 2,500 children centres by 2008 and 3,500 by 2010. So we are indeed giving a high priority to the points made by my noble friend.
	However, so far as concerns the cohort born in 1970, we still believe that we have important duties to them too. That is why we place such great emphasis on support for further education and adult skills. We have invested £3.1 billion in adult skills since 2001 and 862,000 adults have gained a skills for life qualification in that period. So we are not giving up on any part of the age range.

Lord Pilkington of Oxenford: My Lords, the Minister mentioned the Scandinavian experience. Of course the feature of Scandinavia with its comprehensive schools is that enormous attention is given to vocational education. In England, vocational education has not received that attention. Social mobility will depend on people fulfilling their potential. The comprehensive system in England does not allow that. Is the Minister prepared to follow the books he has written and give vocational education a parallel with grammar schools?

Lord Adonis: My Lords, I entirely agree with the noble Lord that as a country we have not given sufficient attention to vocational education in the past. We are seeking to put that right by significant investment in vocational education, including the development of a whole new stream of specialised diplomas in vocational areas, which were announced by my right honourable friend the Secretary of State for Education three months ago. We are putting a significant investment into the area so that they will be widely available through the school system in the years ahead.

The Lord Bishop of Portsmouth: My Lords, does that mean that the Tomlinson report is alive and kicking or dead as a dodo?

Lord Adonis: My Lords, we are implementing most of the key recommendations of the Tomlinson report. It was a valuable piece of work on the need to give much greater priority to vocational education, and in particular to develop highly esteemed qualifications for young people.

The Earl of Onslow: My Lords, are we not likely to get ourselves in a muddle over this? Looking around this House now, I see that it is full of socially upwardly mobile people who have achieved their place by merit and social mobility. This has always been one of the most socially mobile countries in the world.
	I have personal experience of being a governor of an excellent grammar school, of which the right reverend Prelate the Bishop of Portsmouth has also been a governor. When we were forced to go private, we cut off a large number of people who had access to this seat of high academic learning. That inhibited social mobility, and, as I have demonstrated to your Lordships, social mobility is one of the things in the history of this country that I am proudest about.

Lord Adonis: My Lords, when the noble Earl asked his question, I am afraid what leapt to my mind was Lloyd George's famous saying that the House of Lords was,
	"500 men chosen at random from among the ranks of the unemployed".
	That situation has clearly changed dramatically in the past century and I fully accept that the noble Earl is a representative of the new upwardly mobile House of Lords.

Lord Dearing: My Lords, does the Minister share my concern that the proportion of young people taking A-levels seems to have stabilised at about 35 per cent in the past two or three years and is especially low among boys? Does he agree that, in the cause of social mobility, we must get that moving up again?

Lord Adonis: My Lords, I entirely agree, which is part of the reason we have introduced educational maintenance allowances significantly to encourage staying on at the age of 16.

Clean Coal: China and India

Lord Ezra: asked Her Majesty's Government:
	What progress was made at the G8 Summit to involve China and India in the development of clean coal technology in view of the substantial increase in the use of coal in these countries.

Lord Sainsbury of Turville: My Lords, we are very aware of the increasing use of coal in China and India and the longer-term impacts on climate change. As a result, the Gleneagles communiqué gave a commitment to work with those and other countries to support efforts to find cleaner and more efficient ways of using coal for electricity generation. The communiqué also recognised that, in the longer term, carbon capture and storage has a role to play and that work on those technologies should be accelerated. We intend to build on this during our EU presidency through the EU China and India summits in September.

Lord Ezra: My Lords, I thank the Minister for that positive response. Is he aware that in China alone the increase in coal consumption in 2004 was 183 million tonnes—three times our total consumption in this country—and that overall it consumes the astronomical amount of 1.5 billion tonnes, the bulk of which goes into electricity? Are not our efforts to cut carbon emissions in Britain made virtually insignificant compared with increases in China and also in India, where coal consumption is rising substantially? In those circumstances, should we not do everything we can to help them to overcome this problem, particularly by constructing plant in the UK that will demonstrate retrofitting processes for power stations and also full carbon extraction?

Lord Sainsbury of Turville: My Lords, I think that everyone now understands that trying to deal with climate change without bringing in China and India will not deal with the problem at all. The amount of coal consumed by China is particularly important. That is why, as I said, the Gleneagles communiqué covered helping those countries with cleaner coal technology through the work of the International Energy Agency, and working with the Carbon Sequestration Leadership Forum to make certain that carbon capture and storage was also made available to them.

Baroness Miller of Chilthorne Domer: My Lords, the communiqué also mentions the possibility of assessing which of the recently constructed plants are the most cost-effective and have the lowest emissions and disseminating that information widely. How does the Minister intend to get round the problem of which he will be aware with, for example, tidal power? Every time something is constructed in the private sector, lessons cannot be learnt because of commercial confidentiality.

Lord Sainsbury of Turville: My Lords, the purpose of the communiqué was to ask the International Energy Agency to identify and promote the use of the leading-edge clean coal technology. There was an interesting paper from India that covered the question of intellectual property rights, which must be taken forward in the dialogue to follow from that.

The Lord Bishop of Worcester: My Lords, does the Minister agree that engaging the energies of countries with economies developing from a low base in matters such as pollution and climate change will depend crucially on whether they see that the countries which are wealthier and can afford to make the necessary cost sacrifices to employ that technology are willing to do so?

Lord Sainsbury of Turville: My Lords, I agree that there is no way that those countries will make those cost sacrifices unless they see that it is part of an international effort.

Lord Marlesford: My Lords, is China not making a useful contribution to reducing carbon emissions with its programme to construct 29 new nuclear power stations? Can the Minister tell us the situation of nuclear power in India? Still more, when will the Government make up their mind about the future of nuclear power in the United Kingdom?

Lord Sainsbury of Turville: My Lords, clearly, nuclear power stations in China will be an important part of its plans. In both China and India, and indeed in all countries, a mix of technologies will be necessary to deal with the problem. There is no one technology. China will need clean coal technology, because it will continue to use a great deal of its coal supplies. It will need a certain amount of hydroelectric power, and it will probably need nuclear power as well to deal with the problem. I do not know the precise situation in India, but I would guess that the same situation exists there also.

Lord Harrison: My Lords, at the G8 summit, was anything said to the Chinese authorities about the appalling number of deaths each year in Chinese mines, which is now running at the rate of about 6,000 per annum?

Lord Sainsbury of Turville: My Lords, I do not know whether anything was said on that issue, which is clearly important, but I doubt whether it was the sort of issue dealt with at Gleneagles.

Baroness Miller of Hendon: My Lords, given that the noble Lord just said that it would be quite a good idea for China to get involved in nuclear power, even though it needed a mix of different methods, and given that we already have a mix but are running down our nuclear power stations, are the Government going to come out and say that we are also for nuclear power?

Lord Sainsbury of Turville: My Lords, if we have an energy review, that is clearly one of the questions that it would consider.

Consumer Credit Bill

Brought from the Commons; read a first time, and ordered to be printed.

Human Rights: Select Committee

Lord Brabazon of Tara: My Lords, I beg to move the first Motion standing in my name on the Order Paper.
	Moved, That the Commons message of 13 July be now considered; and that a Select Committee of six Lords be appointed to join with the committee appointed by the Commons as the Joint Committee on Human Rights:
	To consider:
	(a) matters relating to human rights in the United Kingdom (but excluding consideration of individual cases);
	(b) proposals for remedial orders, draft remedial orders and remedial orders made under Section 10 of and laid under Schedule 2 to the Human Rights Act 1998; and
	(c) in respect of draft remedial orders and remedial orders, whether the special attention of the House should be drawn to them on any of the grounds specified in Standing Order 74 (Joint Committee on Statutory Instruments);
	To report to the House:
	(a) in relation to any document containing proposals laid before the House under paragraph 3 of the said Schedule 2, its recommendation whether a draft order in the same terms as the proposals should be laid before the House; or
	(b) in relation to any draft order laid under paragraph 2 of the said Schedule 2, its recommendation whether the draft order should be approved;
	and to have power to report to the House on any matter arising from its consideration of the said proposals or draft orders; and
	To report to the House in respect of any original order laid under paragraph 4 of the said Schedule 2, its recommendation whether:
	(a) the order should be approved in the form in which it was originally laid before Parliament; or
	(b) that the order should be replaced by a new order modifying the provisions of the original order; or
	(c) that the order should not be approved,
	and to have power to report to the House on any matter arising from its consideration of the said order or any replacement order;
	That, as proposed by the Committee of Selection, the Lords following be named of the committee:
	L. Bowness L. Campbell of Alloway L. Judd L. Lester of Herne Hill L. Plant of Highfield B. Stern;
	That the committee have power to agree with the committee appointed by the Commons in the appointment of a chairman;
	That the quorum of the committee shall be two;
	That the committee have power to adjourn from place to place;
	That the committee have leave to report from time to time;
	That the committee have power to appoint specialist advisers;
	That the minutes of evidence taken before the Human Rights Committee in the last Parliament be referred to the committee;
	That the minutes of evidence taken before the committee from time to time shall, if the committee thinks fit, be printed; and
	That the committee do meet with the committee appointed by the Commons at four o'clock this day in Committee Room 5.—(The Chairman of Committees.)
	On Question, Motion agreed to; and a message was ordered to be sent to the Commons to acquaint them therewith.

Industrial Training Levy (Engineering Construction Board) Order 2005

Baroness Amos: My Lords, I beg to move the Motion standing in my name on the Order Paper.
	Moved, That the order of 12 July referring the draft order to a Grand Committee be discharged.—(Baroness Amos.)

On Question, Motion agreed to.
	Offshore Petroleum Activities (Oil Pollution Prevention and Control) Regulations 2005
	Companies Act 1989 (Delegation) Order 2005
	National Minimum Wage Regulations 1999 (Amendment) Regulations 2005

Lord McKenzie of Luton: My Lords, I beg to move the three Motions standing in my name on the Order Paper.
	In moving this Motion, I repeat the declaration that I made in Grand Committee about the Companies Act 1989 (Delegation) Order 2005: that I am a fellow of the Institute of Chartered Accountants in England and Wales and a former partner of Price Waterhouse and will be, in due course, a pensioner of PricewaterhouseCoopers.
	Moved, That the draft regulations laid before the House on 10 February and 20 June and the draft order laid before the House on 25 May be approved [13th Report from the Joint Committee, Session 2004–05 and First Report from the Joint Committee].—(Lord McKenzie of Luton.)

On Question, Motion agreed to.

Community Legal Service (Scope) Regulations 2005

Community Legal Service (Cost Protection) (Amendment) Regulations 2005
	Revised Funding Code Prepared by the Legal Services Commission
	Civil Procedure (Modification of Crown Proceedings Act 1947) Order 2005

Lord Evans of Temple Guiting: My Lords, I beg to move the four Motions standing in my name on the Order Paper.
	Moved, That the draft regulations laid before the House on 21 June, the revised funding code laid before the House on 27 June and the draft order laid before the House on 23 June be approved [First Report from the Joint Committee] [5th Report from the Merits Committee].—(Lord Evans of Temple Guiting.)

On Question, Motion agreed to.

Procedure of the House: Select Committee Report

Lord Brabazon of Tara: My Lords, I beg to move the second Motion standing in my name on the Order Paper.
	I should like to draw your Lordships' attention in particular to paragraph 9 of the Procedure Committee's report, which refers to the excellent contribution made by the Merits of Statutory Instruments Committee to effective scrutiny of delegated legislation. The reports of that committee represent an exceptional resource, of which the House might wish to make greater use.

Moved, That the First Report from the Select Committee be agreed to.—(The Chairman of Committees.)
	The report can be found at the following address: http://www.publications.parliament.uk.pa/ld200506/ldselect/ldprohse/26/2602.htm

Borough Freedom (Family Succession) Bill [HL]

Lord Graham of Edmonton: My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Unless, therefore, any noble Lord objects, I beg to move that the order of commitment be discharged.
	Moved, That the order of commitment be discharged.—(Lord Graham of Edmonton.)

On Question, Motion agreed to.

Consolidated Fund (Appropriation) Bill

Lord McKenzie of Luton: My Lords, I beg to move that this Bill be now read a second time.
	Moved, That the Bill be now read a second time.—(Lord McKenzie of Luton.)
	On Question, Bill read a second time; Committee negatived.
	Then, Standing Order 47 having been dispensed with, Bill read a third time, and passed.

Finance Bill

Lord McKenzie of Luton: My Lords, I beg to move that the Bill be now read a second time.
	In moving Second Reading, I shall be covering the substance and main clauses in the Bill. It is also my intention to address some of the issues raised by the report of the Economic Affairs Committee on the Finance Bill 2005.
	As my right honourable friend the Chancellor outlined in the Budget in March, the Government's economic objective is to build a strong economy and fair society, where there is opportunity and security for all. The Government are committed to locking in stability and investing in the UK's future, enabling it to meet the challenges and to take full advantage of the opportunities presented by a rapidly evolving global economy.
	The long-term decisions that the Government have taken—such as giving independence to the Bank of England, new fiscal rules and debt reductions—have helped shape economic stability. It is that stability that provides the platform for building prosperity, achieving social justice with security and opportunity for all, and maintaining investment in public services. Stability will allow business, individuals and the Government to plan more effectively for the long term, improving the quantity and quality of investment and helping to raise productivity.
	Through the 1980s and 1990s inflation was as high as 20 per cent and 10 per cent respectively, compared with 3 per cent or less in every one of the past eight years. Indeed, with Bank of England independence and sustained wage discipline, inflation today is at 1.6 per cent. That makes our economy the least volatile and most stable of all the major industrialised economies as we continue to meet our inflation targets.
	In addition, the UK economy is estimated to have grown by 3.2 per cent in 2004, in line with government forecasts. That constitutes growth in 50 consecutive quarters, and the forecast is continued growth through quarters 51 to 54. Over the past eight years, Britain and North America have grown at twice the rate of our G7 competitors while our living standards have also risen twice as fast.
	Since 1997 Britain has 150,000 more self-employed, 300,000 more businesses and 1.5 million more homeowners. There has been a 50 per cent increase in personal wealth and a doubling in the numbers of those earning more than £30,000, £50,000 and £100,000 a year, while 2 million children and almost 2 million pensioners are no longer trapped in absolute poverty. In the 18 years from 1979 to 1997, interest rates averaged 10.4 per cent. In the past eight years, they have averaged 5.3 per cent—half as much—while official figures show that since 1997 we have created 2.1 million jobs.
	This Finance Bill reintroduces legislation announced in Budget 2005 that was not enacted by the Finance Act 2005. It introduces important measures to promote fairness and tackle tax avoidance while keeping pace with the challenges and opportunities presented by the rapidly evolving global economy. The Government have responded to representations received since 24 March by making some changes to the legislation originally published in March, and by issuing enhanced guidance to allay fears such as, for example, that innocent corporate structures not set up for the purposes of tax avoidance would be affected by measures to tackle avoidance involving financial arrangements.
	A modern and fair tax system encourages work and savings, keeps pace with business practices and the global economy and provides a foundation on which to build world-class public services. For our tax system to work effectively, everyone needs to pay his fair share of tax and receive the tax reliefs to which he may be entitled. Tax avoidance and tax fraud seriously undermine the ability of the tax system to deliver its objectives, and imposes significant and potentially damaging costs on society.
	The Government are committed to combating all forms of tax avoidance, including VAT. Measures in the Bill which help combat VAT avoidance include legislation that enables HMRC to combat avoidance schemes that abuse UK Customs warehousing rules and an extension of the unjust enrichment provisions so that no business can unfairly benefit from charging too much VAT.
	The disclosure rules announced in Budget 2004 require promoters and users of certain tax avoidance schemes and arrangements to provide information to the Revenue departments. As announced in Budget 2005, Clause 6 and Schedule 1 extend the definition of tax advantage to include circumstances where a scheme is intended to reduce irrecoverable VAT and to simplify requirements for disclosure of a newly listed scheme if it has already been disclosed as a hallmark scheme.
	I welcome the positive comments about the disclosure rules made by the Economic Affairs Committee in its report. The rules are a key part of the Government's strategy for tackling avoidance and ensuring fairness. They target the secrecy and concealment on which avoidance thrives and will make it difficult for HMRC to identify quickly avoidance schemes and those using them.
	The committee did however comment that the industry wanted more feedback on VAT consultation. The VAT disclosure rules are aimed at users, whereas direct tax rules are aimed primarily at promoters. Inevitably there will be greater dialogue with tax practitioners on the direct tax side. However, I assure the committee that HMRC is fully committed to maintaining ongoing dialogue about both sets of disclosure rules. A single point in HMRC anti-avoidance group is responsible for both.
	I turn to measures affecting personal taxation. The Government want people to be able to make informed choices about how and when to save and on how long to work, so that they get the income they expect in retirement. From 6 April 2005, pensioners delaying claiming their state pension for a while will be able to take a one-off taxable lump-sum payment when they finally claim. Clauses 7 to 10 make changes to ensure that pensioners are not put into a higher tax bracket or that they do not lose any of their age-related income tax allowances as a direct result of taking the lump sum.
	Recent events have demonstrated the generosity of the British public in donating in times of need, and the use of Gift Aid by charities and donors has grown considerably. For example, £586 million of tax was repaid to charities on Gift Aid donations in 2003–04. That is why we have included Clause 11, which will amend existing Gift Aid legislation on admissions. That will clarify the circumstances in which Gift Aid will apply where free admission is given in return for a donation.
	Crucially, this amendment upholds the core principle of Gift Aid in generating new and additional giving, and it broadens the types of charities that can benefit. Clause 12 and Schedule 2 act permanently to close down contrived attempts to avoid or reduce tax and NICs, protecting a possible £500 million of revenue each year. I was encouraged by the recognition of the Economic Affairs Committee of the magnitude of the avoidance of income tax and NICs through employee securities and the committee's favourable view of the steps taken by HM Revenue and Customs to prevent that.
	I should like to take this opportunity also to respond to a point raised in the Economic Affairs Committee report—that Clause 12 and Schedule 2 create a risk of double taxation and that
	"a tax payer who received convertible securities could ultimately be taxed on a greater value than the true value of the convertible security".
	The Government believe that it is fair that tax and national insurance contributions should be paid at the same rates on earnings, whether those are paid using cash or employment-related securities. On double taxation, promoters of schemes must warn their clients if, by entering into a complex arrangement involving the use of unusual forms of payment in an attempt to avoid paying tax, the person then becomes liable to additional tax consequences elsewhere.
	The Economic Affairs Committee reports further comments that those rules may create uncertainty for businesses and tax planners. The statement made by my right honourable friend the Paymaster General on 2 December put our position beyond doubt: should any other schemes arise that attempt to avoid or reduce income tax and NICs, they will be closed down with effect from that date. I am sure that all noble Lords will agree that that increases certainty by making clear that the Government will not tolerate contrived arrangements intended to reduce the tax and NICs to be paid on rewards for employment.
	Since 1997, the Government have taken steps to reform the business tax system to reward entrepreneurship, including cuts in corporation tax and the introduction of targeted measures such as R&D tax credits and measures to reduce the administrative burdens of VAT. To help foster the wider economic benefits that scientific research organisations can provide to UK business, Clauses 13 to 15 update the existing tax exemption for SROs by allowing them to widen their activities and undertake a broader range of R&D and also remove an annual reporting requirement from SROs.
	I am sure that the House will be happy to join me in recognising the essential role played by the City and the financial services sector across Britain in driving our economy forward.
	Professionally managed, well-communicated and diverse financial services support our economic growth and are key to our continued prosperity. That is why the Government have been keen to tackle issues from improved financial inclusion to the workings of the investment chain. As part of the package of reforms to the tax regime for authorised investment funds, this Finance Bill includes powers to rationalise the existing legislation that applies to those funds.
	Clause 16 specifies a reduced rate of corporation tax of 20 per cent that will apply to open-ended investment companies, ensuring they are subject to the same treatment as authorised unit trusts. In addition, Clauses 17 to 19 will introduce powers to change regulations that are designed to facilitate a more flexible approach to investment strategies.
	This Government have always made clear our determination to ensure that the tax system is fair and is seen to be fair. We have also taken a series of concrete steps to prevent abuse of the tax system, and we will continue to close tax avoidance schemes as we become aware of them. Such avoidance schemes create economic distortions, provide commercial advantages over compliant taxpayers and redistribute tax revenues in an unfair and arbitrary manner. So in addition to the VAT measures and extension of the disclosure rule I mentioned earlier, this Finance Bill also includes legislation to counter various forms of tax exploitation.
	That includes Clauses 24 to 31 and Schedule 3, which will close down schemes where companies seek to gain a UK tax advantage by exploiting differences within and between tax codes. The Bill also incorporates Clauses 32 to 34 and Schedule 4, which will prevent arrangements that enable individuals and trustees to avoid tax on capital gains.
	Clause 39 and Schedule 7 will prevent avoidance by companies and individuals using financial product based schemes. The measures tackle a wide range of financial product avoidance schemes disclosed under the rules. The tax at risk from these schemes is estimated to run into several hundreds of millions of pounds. Clause 39 and Schedule 7 were also subject to the scrutiny of the Economic Affairs Committee. The committee was positive in its support for the steps the Government are taking to tackle avoidance. However, some concern was raised over a perceived lack of consultation with industry, citing concerns raised by the sector which had not been taken on board by HMRC.
	Responding to this point, I draw the attention of noble Lords to the press notice issued on the publication of the third Finance Bill on 26 May which detailed a number of changes to the legislation as originally published as a result of representations from and discussions held with industry. The clause and schedule in question were amended to ensure that they do not affect routine arrangements concerning preference shares and other common corporate structures not set up for the purpose of tax avoidance. The regulation-making power was also amended so that it can only be exercised prospectively. This demonstrates that the Government have and do consult with and listen to the private sector and have responded to their concerns.
	Clause 40 and Schedule 8 update the transfer pricing rules introduced by the Finance Act 1998 to prevent parties which have a control relationship over a company entering into transactions on a non arm's-length basis to obtain a tax advantage. A further change ensures that the rules cannot be avoided by putting financial arrangements in place up to six months before a control relationship exists.
	Clause 42 and Schedule 9 contain a range of measures dealing with the taxation of life insurance companies which can be divided into four broad categories: measures that follow from changes to the regulatory rules for financial institutions regulations for which the FSA is responsible; measures to improve the way income and gains of a life insurance company are allocated between categories of business that are taxed in different ways or at different rates of tax—these rules are known as the "apportionment" rules; measures to stop avoidance, particularly in the course of transfers of business from one life insurance company to another; and minor measures to correct small defects in existing legislation.
	To counter a number of stamp duty land tax avoidance schemes, Clause 49 and Schedule 10 close known loopholes including, among others: limiting artificial group relationships which have been set up purely to avoid the claw-back of group relief; and restricting the definition of "undertaking" in relation to acquisition relief to trades other than property trading, so that only genuine businesses can benefit.
	Concluding my brief run through the significant clauses of the Bill, I draw the attention of noble Lords to Clauses 51 to 65 which together make up a package of measures designed to enable UK companies to form a new corporate structure known as a European Company without suffering a tax disadvantage.
	So, in summary, what we can see here is that the Government are striking a balance between encouraging enterprise yet discouraging avoidance, between building a favourable climate for business, yet ensuring that the tax system is fair and seen to be fair. The Bill demonstrates the Government's commitment to the continuing development of a modern and fair tax system, and I commend it to the House.
	Moved, That the Bill be now read a second time.—(Lord McKenzie of Luton.)

Baroness Noakes: My Lords, I thank the Minister for introducing his first Finance Bill in your Lordships' House. I look forward to an excellent debate today, and in particular I await the maiden speech of my noble friend Lord Hamilton of Epsom.
	The Minister will be aware that the skills of this House as a revising Chamber cannot be used on the Finance Bill, although I am sure that all noble Lords welcome the work of the Economic Affairs Committee in examining certain aspects of it. In this election year, that work has necessarily been reduced, compared with the past two years, but I think that noble Lords will agree that the report is stimulating and useful. I am glad that the Minister took time in his speech to make some detailed responses to it. I know that my noble friend Lord Wakeham, the chairman of the Economic Affairs Committee, will speak later on its report.
	We on these Benches welcome the report. We hope that, in the fullness of time, your Lordships' House can play a more substantial role on the technical aspects of Finance Bills, as opposed to their fiscal policy aspects. In the mean time, our Economic Affairs Committee is building a strong case for the competence and credibility of your Lordships' House to work in this way.
	Before I turn to the Bill, this debate offers an occasion to look at the Budget from which it is derived, even though it was delivered some four months ago. Since then, economic news has not been encouraging. We on these Benches have long challenged the ability of the Chancellor to stay within his self-imposed golden rule. On 28 June, I specifically asked the Minister whether the Government had any plans to change the definition of the economic cycle for the golden rule. The Minister said:
	"My Lords, I confirm that the Government have no such plans".—[Official Report, 28/6/05; col. 129.]
	The kindest thing that I can say about that is that the Minister is clearly not in the confidence of the Chancellor.
	This morning, the Chancellor announced that he has redefined the golden rule as starting two years earlier, in 1997. Hey presto, the golden rule is met. I hope that when the Minister winds up this evening, he will explain the circumstances of his misleading the House on 28 June.
	On these Benches, we condemn creative accounting. Our policy is for an independent fiscal projections committee to avoid just such skulduggery. It is interesting that, in opposition, Gordon Brown advocated an independent panel of forecasters, though, in government, he quietly dropped the idea in favour of the pragmatic appeal of the flexibility to cook his books.
	Cooking the books does not change the fundamentals. Let me remind the Minister that since the Budget none of the experts outside the Treasury has moved towards supporting the Government's growth forecast for this year. The Bank of England expects only 2.5 per cent. Since the MPC has the benefit of a Treasury representative at its monthly meetings, we might deduce that the Treasury case is not very compelling.
	I have two specific questions for the Minister about prospects for growth. In the light of the decline in manufacturing output in the three months to April this year and the loss of 1 million manufacturing jobs since 1997, does he still expect 2005 manufacturing output to increase by 1.5 to 2 per cent, as set out in the Budget? Secondly, given the erosion of consumer confidence—which all retailers know about—the collapse of mortgage equity withdrawal and the slowing of household debt, does the Minister still expect household consumption to rise by 2.25 to 2.75 per cent?
	It is not surprising that tax revenues in the early part of the year are already down and that borrowing is already up. The structural deficit is plain for all to see. Spending cannot run ahead of growth for long, without expenditure cuts or tax increases coming behind. The Chancellor has already acknowledged that his finances are in trouble by postponing his next spending review for two years. Doubtless, he is banking on being in No. 10 before that catches up with him. But I hope that the Minister will want to be straightforward with the House today about the prospects for the economy.
	I turn to the Bill. In terms of its length, the majority of the Bill is devoted to complicated anti-avoidance legislation. The Chancellor's approach to the tax system seems to be predicated on the belief that complicated is good. Year after year, he builds complicated systems of reliefs and incentives—some of which get abused—and then he creates layers of anti-avoidance legislation of almost mind-blowing complexity. When the Chancellor's obituary is finally written, I predict that the headline will be that he created more tax legislation than any other Chancellor in history. There is another way, and it is built upon a completely different foundation stone—simplicity. My noble friend Lady Wilcox will return to this later in her speech.
	The Finance Bill perpetuates the practice, elevated to a high art form by the Chancellor, of creating regulation-making powers which significantly alter the position of taxpayers. For example, Clauses 17 and 18 enable the Government completely to rewrite the tax regime for authorised unit trusts and for open-ended investment companies by order. Another example which has caused the Association of British Insurers to express concern is paragraph 3 of Schedule 9, which allows the Treasury to rewrite the tax regime for the insurance industry at will. We believe that changes which affect such a significant and tax-sensitive industry should be dealt with by primary legislation. We say that it is wrong in principle for the tax system of this country to be gradually relegated to regulations, subject at best to the negative procedure.
	Quite simply, a loss of Parliament's sovereignty is implied by this Finance Bill and, indeed, by its predecessors. It is not just a question of meaningful parliamentary scrutiny. It is not even about Parliament losing out to the executive. Some of the issues dealt with in orders are so complex—I again cite the taxation of insurers—that I challenge Ministers to say, hand on heart, that they truly understand the implication of the complex orders that result. What the Bill does, de facto, is pass legislative authority to civil servants. That is no way to run a country.
	My honourable friends in another place sought to amend the Bill in several important respects, and the Government used their parliamentary majority to defeat those attempts. I should like to spend a few minutes on two aspects of those changes because they throw a spotlight on the kind of government we have.
	Last November, the Government used their parliamentary majority to push through secondary legislation dealing with inheritance tax—the Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulations 2004, to be precise. This innocuous-sounding order was presented as a deregulatory measure, but the reality was very different.
	In the old days, before the order, a full inheritance tax return was required for estates at or just below the £275,000 threshold—a threshold so low that it is already dragging too many estates into the inheritance tax net. The order removed the need for 30,000 estates to submit a full account, but the sting was in the tail. Now all estates above £5,000—not only those just below the threshold—have to submit a new return. That means that about 300,000 estates between £5,000 and £275,000 have to fill in the new return. In human terms, we are talking about 300,000 grieving families caught up in this bureaucracy.
	The new four-page return purports to be simple but, as with so much of the Government's apparent simplification, the devil is in the detail of 23 pages of accompanying guidance and 16 pages of annexes. The form was criticised for its complexity last week in a Public Accounts Committee report. For example, only 36 per cent of users found the guidance notes easy to understand.
	My honourable friends in another place moved amendments which would have removed this unnecessary and intrusive burden. The Government's response was typical; they denied that there was a problem, with a lot of allusions to fairness, implying that these estates of £5,000 and upwards were potential inheritance tax cheats. That is a rather typical socialist attitude towards the asset-owning classes.
	My honourable friends in another place also moved amendments to implement a system of real estate investment trusts. These have been announced many times by the Government but not delivered. The property industry thinks that it would be good for our commercial property markets and it would add another range of products for our financial services industry. The Government have given no reason for their constant delay. This is just another example of the Government not being sufficiently interested in asset ownership and savings.
	The Government are facing economic prospects that are less rosy than at the time of the Budget. The country's finances have a structural deficit building up as a consequence of spending running ahead of economic growth. It gives us on these Benches no joy to see the black hole looming up ahead because that means painful solutions, probably in the form of higher taxes.
	This Finance Bill is part of the Government's clumsy approach to economic management. They have built their spending plans on forecast tax revenues which now look uncertain. They see increased yield through the war on tax planning—re-badging it as "avoidance" as if that were as bad as tax evasion and, in doing so, blurring the age old principle that a taxpayer may legitimately order his affairs in order to minimise his tax burden.
	I do not hold a banner for the tax planning industry but, equally, I see the Government's fiscal focus as dangerously unbalanced—and possibly even counter-productive—if, as has been suggested, it drives new investment away from the UK to shores which are more fiscally friendly.
	This Finance Bill is not one of which any Government could be proud, although the noble Lord, Lord McKenzie of Luton, has put up a loyal effort today. We will see it pass through its formal stages in your Lordships' House but not with any sense that it contributes to the economic well-being of our nation.

Lord Wakeham: My Lords, one learns something new each day in life, and I have learnt something new today. It was the suggestion of the noble Lord, Lord Barnett, that he and I should change the order of speaking from that which noble Lords might have been expecting. I am grateful to him for doing so. He suggested it because I was the chairman of the Select Committee, the report of which we are discussing. However, I should add that the noble Lord was a very distinguished member of that Select Committee and, in some ways, it is good that he should speak after me because he can put me right if I get anything wrong in what I say. It will not be the first time that he has put me right over the years and, I suspect, it will not be the last time.
	I am pleased that my noble friend Lord Hamilton is to make his maiden speech today. I am delighted to see him in this House and I look forward to what he has to say.
	My noble friend and I have soldiered through many battles over the years. He was a member of the Whips' Office when I was the Chief Whip in another place. One service that he rendered to me in that place has never been publicly recorded. I am going to do so now. On the day I returned to the House after the Brighton bomb I came in on crutches. I was expecting a warm and friendly reception—which, indeed, I received; I am told that the House rose for the first time for the return of a Member since Churchill's 80th birthday—but I had considerable doubts about whether I might wobble on the crutches, on which I was not very secure. I therefore selected not only the most intelligent or the best looking Whip in the office but the one who was biggest and strongest to walk behind me as I made my way into the House so that he could catch me if I should fall between the Bar and my seat as Chief Whip. We managed it together very well.
	I remember that the noble Lord, Lord Hattersley, for the first and only time in his life, said, "I have forgotten, Mr Speaker, what question I was about to ask, but perhaps it does not matter very much". It was quite a day. My noble friend, whom I hope to hear many times in future in the House, was an important part of getting me there on that day and I shall always be grateful to him.
	I make no apology for the fact that in contributing to the debate on the Finance Bill 2005 I have chosen to focus on the inquiry carried out by the Economic Affairs Committee of this House. For the third year running, the committee has examined and reported on key Finance Bill provisions in the field of revenue protection. Before coming to the substance of our findings about the Bill, on which the Minister has very helpfully given us the Government's view, perhaps I may offer a brief word of history to set this year's inquiry in context and explain the reasons for our choice of topic.
	The House may recall that the initiative of examining Finance Bills was launched in 2003 following a recommendation on working practices from the Leader's Group. The Leader's Group had observed that,
	"there are a significant number of members on all sides of the House with considerable expert knowledge of financial matters".
	It went on to say that,
	"their ability to debate and scrutinise annual financial legislation is not at present being well used and could be better used without encroaching on the financial privileges of the Commons".
	It recommended, therefore, that a sub-committee of the House's Economic Affairs Committee should be annually appointed to consider and report on aspects of each year's Finance Bill, although the terms of reference for such a committee should preclude it from considering the incidence or rates of tax and it should focus instead on issues of tax administration, clarification or simplification.
	Last year and the year before, the noble Lord, Lord Peston, undertook the chairmanship of the Economic Affairs Committee, and I pay tribute to his work in that regard. On succeeding him, I found myself confronted with the issue of whether it would be appropriate to hold an inquiry at all this year. After all, with the dissolution of Parliament prior to the general election and the inevitable postponement in the presentation of the Finance Bill, it was clear that there would remain very little time—four weeks at most, compared with the usual two to three months—in which to appoint a sub-committee, collect evidence and write our report.
	On the other hand, it seemed to us important to maintain an unbroken record since 2003 of reporting on Finance Bills in order to send a clear signal that we no longer regarded this activity as being an experiment, but as something which had matured into being a regular part of the annual work cycle of this House.
	However, we were concerned that time pressures might force on us a less-than-thorough inquiry and that such an outcome might devalue the work of earlier years. We therefore decided that the best way to proceed was to choose just one topic of high importance and to concentrate our full attention on that.
	Making the right choice was therefore crucial. We chose to confine ourselves to the issue of countering tax avoidance. I am grateful to the Minister for having studied our report and for his comments, which I will read after this debate to see whether I share his confidence that what he said met our points. But I do not think that there is too much difference between us.
	Anti-avoidance had been a major issue in both our previous reports and thus presented us with the advantage of returning to familiar territory. Moreover, the Government continue to give a high priority to protecting tax revenues, placing this activity at the centre of their strategy for delivering a modern and fair tax system. The budgetary significance is considerable. The estimated yield from blocking loopholes by means of the three provisions that we examined totalled some £660 million in 2005–06, rising to £700 million in 2007–08.
	The provisions which require disclosure of certain tax planning arrangements in three areas—VAT, rewards from employment and financial products—were a significant innovation of the Finance Act 2004. One of our witnesses, a practising accountant, described them to us as "revolutionary" in their effect.
	We had been struck last year by strongly held misgivings, voiced to us by the private sector, about the workability of the new arrangements. We drew attention in detail in our report to the many concerns that were raised with us. We were therefore very much reassured to hear from our witnesses that the direct tax disclosure rules, as finally adopted, were greatly changed for the better, thanks to a thorough consultative process. On the VAT side, however, the Institute of Chartered Accountants in England and Wales told us that more feedback was needed. The Minister declared his membership of that body, as do I—although unfortunately nobody has offered me a pension; that is something that I had better look into. We drew the institute's remarks to the attention of Her Majesty's Revenue and Customs.
	Clause 6 of and Schedule 1 to the Bill extended the classes of reportable VAT planning schemes. We concluded, on the evidence, that this was a proportionate and appropriately targeted response to the mischief. It seemed to us that legitimate business should not be adversely affected because, as HMRC put it to us, it,
	"is not the sort of scenario that one would expect a business to fall into in an innocent way".
	We did, however, recognise the scale and seriousness of the problem concerning the risk of confidentiality clauses in standard agreements of engagement constituting a VAT "hallmark", thus triggering disclosures in unwarranted numbers. We were told that that was the subject of further consultation, and we look forward to an outcome.
	Most space in our report was taken up with employee securities, in Clause 12 and Schedule 2. We listened with increasing concern to HMRC's catalogue of ingenious schemes devised over the years in order to pass remuneration value to employees, particularly bonuses to the higher paid, in a way that attempted to avoid or reduce income tax and NICs. In the light of that, we found persuasive HMRC's conviction that, even after the provisions in this Bill had become law,
	"there will be something new, the whole history of this suggests there will be, and we will have to counter that when we get there".
	After probing questions—and we probed hard on these matters—and careful consideration, we were persuaded that an exception to the normal approach to backdating was justified. We did, however, take issue with the robust line taken by HMRC towards a risk perceived by some of our private sector witnesses that certain employees remunerated by convertible securities could ultimately be taxed on a greater value than the true value. We recommended further consideration. The Minister mentioned that matter, and I shall have to look carefully at what he said.
	We were guided throughout our approach to the draft legislation by one overriding concern: that the measures should be capable of application in a straightforward way to the real world of business, so as to catch the mischief at which they were targeted without causing unintended problems for legitimate commercial operations. Two issues in the area of avoidance involving financial arrangements, Clause 39 and Schedule 7, were raised with us, which caused concern on that score. The rent factoring proposals, in paragraph 1 of Schedule 7, was said to have created uncertainty for normal sale and leaseback arrangements. And the draft legislation on shares treated as loan relationships, in paragraph 10 of Schedule 7, was said to do harm to the position of group finance companies carrying out normal exchange operations. Our report drew those matters to the attention of HMRC, and I hope that they will be considered.
	It was never part of our intention to establish a claim to an entry in The Guinness Book of Records, but in Finance Bill 2005, I believe that we have created a performance that will be difficult to equal and perhaps impossible to beat—an inquiry lasting just 27 days from the establishment of the sub-committee to the publication of the report. Despite the timescale, it is not a mini-report.
	I finish where it is normal to begin—by thanking most warmly our Clerk, Mr Robert Preston, and his team, and Mr Brian Shepherd, our special adviser, who had to work hard and expertly to assist us to achieve our report within the timescale. It is a full-scale report that deserves respect, and I commend it to the Government and to the House.

Lord Barnett: My Lords, I was delighted to give way to the noble Lord, Lord Wakeham, the chairman of the sub-committee. If I may say so, he was an excellent chairman. I welcome in advance the maiden speech of the noble Lord, Lord Hamilton. During my nearly 20 years in the other place I do not recall him speaking on a Finance Bill so I particularly look forward to this occasion.
	I shall speak briefly on only two aspects of the debate. First, I shall have a few words to say on the economy, the Finance Bill itself and the sub-committee's report. As regards the economy, the central issue, as the noble Baroness, Lady Noakes, again dwelt upon, is the golden rule and its potential breach. She never takes my advice, I am sorry to say. She constantly gives us those party political views which in your Lordships' House no one listens to, and, if they do, it makes no difference because they do not have any votes. As regards the potential breach in the golden rule, on this occasion all the forecasts—if the cycle had not been changed—may well have been right. On the law of averages, it is possible. They were always wrong in the past, as was the noble Baroness, but they could have been right this time. However, even if they were right, what exactly should we be doing?
	I read in the Times and Financial Times this morning about the delayed review of public spending. They stated—I shall not bother repeating the exact words—that that implied that the Chancellor was taking a firmer grip on public expenditure. He could not take a firmer grip on his control of public expenditure because since 1997 no one else other than the Chancellor has had the slightest grip on public expenditure. No departmental spending Minister had any control over public expenditure. Therefore, I am not at all clear that this will be any firmer a grip that the Chancellor is said to be taking.
	However, as I say, the noble Baroness, Lady Noakes, again gave us her party political views on these matters. Indeed, on this occasion her party political views were writ even larger than usual, which is difficult for her but she managed it. On the other hand the noble Baroness and the forecasters may be right on this occasion that there would have been a breach in the golden rule. What do the forecasters tell us about what should be done? Of course, they do not tell us anything because the forecasters only forecast and do not give us answers to any problem that might arise. On the other hand to be credible an opposition should give us the answers if there were to be a breach in the cycle, or at least give us their view of what should be done—but that we did not get.
	I do not have to give my views on what should be done if there is a breach, but I shall. The plain fact is, as has always been said, that the golden rule is a much better method of control than the growth and stability pact that is used by the euro-zone. The golden rule is, indeed, a more flexible approach. While the figures for this year may be down, it does not mean to say that they will be over an economic cycle, whether extended or not. On this occasion there may well be a breach. As the noble Baroness asked, should the Chancellor in those circumstances either increase taxation or cut public expenditure? I do not think that he should do either of those things. The plain fact is that the flexibility of the golden rule is excellent. Our borrowing as a percentage of GDP is lower than that of most countries in the West. In those circumstances, a small breach on one occasion would be no disaster and would not require either an increase in taxation or a cut in public expenditure. That said, I shall leave the noble Baroness to tell us again about the economy in the future and I shall say a word or two about the subject that we are supposed to be debating; namely, the Finance Bill.
	I was going to congratulate the noble Lord, Lord Wakeham, in advance of his speech; he knows that I believe him to be an excellent chairman of the sub-committee, as was my noble friend Lord Peston. Both were truly independent in their consideration of these matters. Select Committees in your Lordships' House have always done an excellent and independent job and that applies particularly to the Economic Affairs Select Committee and to the sub-committee on the Finance Bill, which the noble Lord, Lord Wakeham, chairs so admirably.
	Sadly, my right honourable friend the Chancellor—and he is a good friend of mine—takes no notice of what your Lordships' House says. He is not alone in that. In my experience no Chancellor—a former Chancellor will speak a little later—has ever taken any notice of what this place says. Neither does the House of Commons, because, in my experience over many years, it never looks at the detail of the Finance Bill. The opposition pick out the sexy bits. When I began introducing Finance Bills in 1974, my opposite number was the noble Baroness, Lady Thatcher, who led for the opposition. She never discussed with me any detail of the Finance Bill, either on the Floor or outside, because that was not the way of oppositions—I refer to all oppositions, both Labour and Conservative. They never took a serious look at how a Finance Bill might be amended.
	I am delighted that that is now being done by the Lords Select Committee. But I also regret that the Chancellor does not recognise that, as he should. In my experience, Chancellors never themselves looked at Finance Bills. My noble friend Lord Healey left it to me and my noble friends and I felt that I did not need to consult him much on such matters; I should imagine that that has applied to most Chancellors of the Exchequer over the years.
	However, the Chancellor is wrong not to take any sensible view of what your Lordships' sub-committee on the Finance Bill says, because it is truly independent, unlike the other place—even the Select Committees in the other place. The reports of the Treasury Select Committee invariably conclude with votes on party political lines. Our reports are always unanimous, because we look not at the party political views of the committee but at the sense—or nonsense—of Select Committee amendments. I hope that we do a job that should and would be helpful to a Chancellor of the Exchequer, because complex tax issues do not lend themselves to party political considerations. Complex tax issues deserve serious consideration, such as those that our Select Committee addresses.
	Indeed, issues such as those to which the noble Lord, Lord Wakeham, has referred have received our consideration and we were truly independent on those matters. He has already quoted paragraph 59. There is another. Just to indicate how independent we were, paragraph 61 stated:
	"Given the vast amount of tax at stake and in the light of that history we were persuaded that an exception to the normal approach to backdating was justified. Moreover, it seemed to us that the suggestion that professionals"—
	the accountants and tax lawyers—
	"might now find it difficult to advise about remuneration packages that included share schemes and share option plans for the generality of employees was an exaggeration."
	Of course it was an exaggeration. It was not going to catch innocent taxpayers.
	Indeed, there is a conflict of interest here. The accountants and tax lawyers who said that they were in agreement with cutting out tax avoidance schemes—perhaps not those who gave evidence to us but others—were proposing precisely those tax schemes and we all know that. That is why I say that these do not lend themselves to party-political considerations.
	On the other hand, I am worried that the current Chancellor, my good friend the right honourable Gordon Brown MP, might take these matters more seriously. I fear that neither my noble friend the Minister who will reply to the debate nor his officials will be able to convince the Chancellor. Therefore, I suggest to the noble Lord, Lord Wakeham, that he drops a note to the Chancellor who, I must tell him, is a very nice fellow. I also suggest that he and a few members of the sub-committee should have a meeting with the Chancellor to discuss these matters because they are in his interest and that of the public. That is what I believe we should do.

Lord Hamilton of Epsom: My Lords, it is a great honour to have been appointed to your Lordships' House. I am wearing a white rose of Yorkshire, which is strange because I have virtually no connection with Yorkshire. However, earlier today I was trying to help out at the memorial service of my very good friend Sir Donald Thompson who died earlier this year. Don was a great Yorkshireman indeed, and he was much loved and respected on both sides of the House of Commons.
	My noble and learned friend Lord Lyell of Markyate and I have been out of the House of Commons since the 2001 general election. I do not know about my noble and learned friend, but I have certainly suffered severe political withdrawal symptoms. However, while I was out for a Parliament, I made the awful discovery that outside the Westminster village there are quite normal people with no interest in politics whatever. I am not sure that they do not form the majority of the electorate at large.
	In the short time I have been here, I have observed a great contrast between your Lordships' House and the other place. The obvious difference is that no one here has any constituents or elections to face. The other great contrast is in the code of behaviour and the way in which one Member of this House treats another. There is a degree of politeness here which is totally unusual to someone previously in the House of Commons. That has not happened by accident. Good manners can be very much attributed to the self-regulation of your Lordships' House. Members of this House have been trusted to regulate their own affairs. Replace that trust with a figure of authority, such as the Commons Speaker, and a new game comes into play. The question will then be how to challenge that authority. Only a minor number of Members of this House will play that game, but they will spoil it all for everyone else.
	I asked my Whip what topic I should use for my maiden speech. She said that it did not matter too much provided that it was non-controversial. I am pleased to know that I shall be doing everything I can to meet the wishes of my Whip. I always attributed any success I had in the other place to ingratiating myself with the Whips' Office because I was told that that was the way to get on. Eventually, my noble friend Lord Jopling, when he was Chief Whip in the first administration of my noble friend Lady Thatcher asked me to join the Whips' Office. Presumably, that was evidence that all the frightful oiling-up had paid off.
	I am grateful for the remarks of my noble friend Lord Wakeham about our time together when he was Chief Whip. I must pay an enormous tribute to him. I remember, before he returned to the House of Commons, seeing him in Brighton hospital when the doctors were contemplating whether to amputate one or both of his legs. We should never forget the devastating impact that the Brighton bomb had on a number of people. I commend him for the courage which he has shown ever since and the way he came back from that traumatic experience.
	So I am still really ingratiating myself with the Whips' Office. I do not know why I am doing so because the last flickers of ambition have died away. I can attribute it only to force of habit.
	The noble Lord, Lord Barnett, said that in the other place I had not shown much interest in Finance Bills. He is right, but I hope that he will take the view that a sinner that repenteth is somebody who should be welcomed. I have always had some interest in economics and hope to contribute on the subject in this House in the future.
	In the spirit of being non-controversial—I tend to try very hard to follow the instructions of my Whip—I should like to reiterate what the Minister said about the very courageous action of the Chancellor in giving independence to the Bank of England and allowing the Monetary Policy Committee to set interest rates in this country. That has been an extremely good policy.
	On the whole I do not think that too many people have great arguments with the interest rates set by the Monetary Policy Committee. They seem to have suited our economy extremely well. I had always thought that it was a thoroughly Conservative policy and was amazed that the suggestion was not taken up by previous Tory administrations.
	The other major area of policy where the nation should be grateful to the Chancellor is the role he played in keeping us out of the European single currency. I do not know how significant the rules were which the Chancellor created. It may have been more to do with the fact that opinion polls constantly indicated that the British people would not vote for the country joining the euro. There is no doubt that the Chancellor must have been very grateful that he was able to have an independent Bank of England setting his interest rates which suited the British economy, rather than having a European central bank setting the interest rates which would not have suited our economy. We would be in a different position now if that had happened.
	Critics of the euro always said that it seemed very difficult to have the same interest rate operating for a large number of different economies, all operating in different ways across Europe. We were told, "Well, what will actually happen is that we will see convergence in Europe and the economies will all come together". There has been precious little convergence. What we have actually seen is that for old economies such as those of France and Germany the interest rates have been too high, and that for many of the emerging newer economies—for example, the economy of Spain—the interest rates have probably been too low.
	During my working life I seem to have encountered a number of people speculating in property in Dublin. There the name of the game has been to borrow inordinately large sums of very cheap euro money to buy properties in Dublin. We have seen a spectacular bubble in property prices in Dublin. Whenever I see my Irish friends and ask, "Has the bubble finally burst?" they say, "No, it still has not burst. Prices are still as high as ever." It has been a spectacular increase. But that is one of the artificial problems that occurs in a newish economy. Ireland should probably have had higher interest rates. If you have a lot of cheap money then things like houses go roaring up in price, and that is what we have been seeing.
	Much more disturbing is what we have been seeing in the older economies of France and Germany. The "No" votes for the constitution have been blamed on a whole mass of different factors. People go on about immigration, about Turkey coming into the European Union, and about Anglo-Saxon methods of running economies. I suspect that it is all basically simpler than that. To quote President Clinton, "It's the economy, stupid". That has really been the reason for the decisive "No" votes in France and the Netherlands. Not all of the problems facing those countries today can be blamed on their membership of the euro, but that certainly has not helped.
	We now see high unemployment and low growth in France and Germany, as well as growing feelings of national despair. This is extremely disturbing, because that is the basis on which extremism is bred. The object in the beginning of the European project's founders was to try to avoid the re-emergence of extremists. It was designed to stop future wars in Europe. We have been producing precisely the opposite result because of this dangerous economic experiment that does not seem to have worked out at all.
	If one is speaking in a debate on the Finance Bill, it is right that one should make some reference to the Bill itself. I note that its purpose is to combat tax avoidance schemes. I was always told, probably by a chartered accountant, that the tax system breathes through its loopholes—so if we are finally closing all the loopholes, I do not know what the implications are for the tax scheme. All I know is that we now live in a world marketplace where there is fierce competition in the provision of goods and services. That competition is now extending to tax regimes as well. It is interesting that today Estonia has an extremely simple flat-tax system, designed mainly to encourage inward investment into that country. It has been copied by a number of other countries in eastern Europe, and indeed by Russia, and I suspect that we will not be able to insulate ourselves from needing a simple low-tax system if this country is to remain competitive.

Lord Rosser: My Lords, I welcome the noble Lord, Lord Hamilton of Epsom, on behalf of the House, and congratulate him on his interesting and thought-provoking speech. I am glad he has now been given the opportunity to overcome the political withdrawal symptoms he referred to, from which he has been suffering since 2001.
	Although of different political persuasions, we have at least one thing in common: we both contested parliamentary seats in 1974. Unfortunately, we both found that our enthusiasm for representing the respective electorates concerned was not matched by their enthusiasm to have us as their Member of Parliament. Unlike me, however, the noble Lord embarked on a long and distinguished parliamentary career in the other place four years later, in 1978—but not, I am sure, as a result of ingratiating himself to his Chief Whip, as he suggested.
	The noble Lord has held many positions of influence and responsibility, including Minister of State for the Armed Forces and chair of the 1922 Committee. The noble Lord's experience and knowledge is considerable, particularly in the fields of financial and economic affairs and defence matters, as his excellent maiden speech emphasised. I am sure he will make a major contribution to the work of your Lordships' House, as he already has done to work of the other place. We look forward to hearing from the noble Lord on many occasions in the months and years ahead.
	I looked at the report and the evidence of the Select Committee on Economic Affairs on the Finance Bill 2005 with no great expectations of it being a riveting read. In fact it proved a real eye-opener; I refer, in particular, to the evidence of the Treasury and Revenue and Customs witnesses. They drew attention to what I will describe as the murkier end of the tax-avoidance industry. Even some members of the committee may have been surprised at what those witnesses revealed.
	It is of course a natural human desire and right to seek to minimise one's tax payments within the law. However, the murkier end of the tax-avoidance industry operates on the borders of legality, and certainly well outside the borders of morality and the spirit and intention of the law.
	A significant part of the Bill addresses tax avoidance. Tax avoidance and the need to close loopholes is one reason why Finance Bills are sometimes lengthy and complex. I support the Bill and express my appreciation for those at all levels who are engaged in trying to plug tax avoidance loopholes. They are involved in a continuous and not very funny game involving billions of pounds with those who are prepared to pay for advice and information on intricate and unacceptable schemes that will avoid paying the level of tax that laws passed by Parliament intended them to pay.
	In so doing, if they are an organisation, they seek to claim an advantage over competitors with somewhat higher ethical standards or, if they are individuals, to leave other taxpayers paying more to make up for the lost revenue. It is the morality of the pig trough.
	Government have a duty to ensure that taxes collected are spent as productively as possible. The major reductions in debt interest payments and social security costs for unemployment as the number of unemployed has fallen are examples of fulfilling that duty. Government also have a responsibility to make sure that taxes due are paid and that some are not allowed to avoid their responsibilities at the expense of others, or of increased investment in public services.
	In the Budget last year, disclosure rules were introduced by the Government to tackle tax avoidance. Those disclosure rules have revealed the extent and breadth of tax avoidance and the Bill seeks to close a number of schemes that have now come to light. For direct tax, there have been more than 500 disclosures and more than 700 for indirect tax. Around a quarter of the disclosures for direct tax were to reduce tax and national insurance liability in relation to or through employment products.
	Apparently, there was one arrangement to reduce tax on more than £70 million of income by what Her Majesty's Revenue and Customs regarded as a misuse of gift aid arrangements. As the director-general of Her Majesty's Revenue and Customs told the Select Committee on Economic Affairs:
	"We have seen some things that we thought were shocking".
	He also said that the disclosure measures had,
	"brought transparency in a world which was veiled in secrecy and contracts of confidentiality which often prevented us seeing things for years".
	That is why there is relatively little public reaction and anger about some of the activities of the tax avoidance industry: an industry that gnaws away at the concept of a fair tax system and lands the vast majority with bigger tax payments as a result of its activities on behalf of—usually—the wealthy few. The case that I referred to a few moments earlier involving misuse of gift aid resulted in an individual who had made the gift and got it back obtaining tax relief of just short of £40 million.
	The tax avoidance industry has thrived on secrecy. If the vast majority do not know what is going on, there will not be any great adverse public reaction. Our national media and their City editors have seemed lukewarm about running investigative campaigns on the issue to expose what is going on and the billions of tax revenue that is being lost. One must wonder why.
	On VAT alone, the tax gap—the difference between what is collected and what is due under law—is nearly 13 per cent. That represents a significant amount of revenue and, of that amount, a significant proportion is through tax avoidance activity.
	Avoidance of income tax and national insurance on the rewards for employment has been the source of many sophisticated schemes. Estimates suggest that about £2 billion paid in bonuses was destined to go through such schemes in 2004–05. Without the measures in the Bill, about £500 million-plus in tax and national insurance would be at risk each year.
	Although the Bill is intended to address some existing tax avoidance schemes, I hope that my noble friend will be able to give some reassurance that the Government will not create a new tax loophole with the coming changes in the rules for self-investment personal pensions providing tax relief at the top rate on investing in residential property. Some have claimed that hundreds of millions of pounds of tax revenue will be lost as a result. Could the Minister say whether the Government agree with that analysis and, if not, what their assessment of its impact on tax revenue is?
	It was Franklin D Roosevelt who said:
	"Taxes, after all, are the dues that we pay for the privileges of membership in an organised society".
	I hope the Government will continue to clamp down on tax avoidance schemes, in the interests of fairness and the integrity of the tax system. Tax avoidance is not, at heart, about providing a bit more money for the less well-off members of the community. It is, in reality, about providing a lot more money for those who already have plenty at the expense of the less well-off.

Lord Howe of Aberavon: My Lords, I join those who have welcomed the contribution made to this debate in the maiden speech of my noble friend Lord Hamilton of Epsom. He may just remember that, almost exactly 27 years ago, I had the privilege of speaking at one of the meetings in his first election campaign to succeed my noble and learned friend Lord Rawlinson of Ewell. We welcome him in his new role here.
	I am also glad that he has already begun to appreciate the great difference between this House and the other place. One of the reasons for the strength of this House, the independence of the contributions which we all make, is that there is absolutely no need to ingratiate oneself with anyone. One need not ingratiate oneself with one's whip.

Baroness Wilcox: Steady on. I am the noble Lord's whip.

Lord Howe of Aberavon: My Lords, I say that in total defiance of my noble friend Lady Wilcox. Nor need one ingratiate oneself with one's constituents, since one does not have any. It is that which liberates us from the tribalism which permeates so much that happens in the other place.
	Last year, in the Finance Bill debate, I seem to recollect that I made a rather sharply controversial speech which was actually about the Budget and the Finance Bill. I am unsurprised by the enthusiasm of the noble Lord, Lord Barnett, in taking this opportunity to let us know his views on the Budget. I am going to resist that temptation, however, and revert to my more familiar subject in such debates: the procedure with which we consider this legislation, rather than the substance.
	Before I do so, I declare my probably already notorious interests. First, I have been chairman of the tax law rewrite steering committee for a long time. Secondly, I am an honorary fellow, which I scarcely deserve, of the Chartered Institute of Taxation, as Chancellors, as the noble Lord, Lord Barnet, pointed out, are not necessarily very expert in taxation. Finally, I hold the presidency of the tax law review committee of the Institute for Fiscal Studies.
	My first point is derived directly from the IFS and its review committee. It concerns a matter in which the IFS has taken an interest for some years: the reform of the tax appeal process. Indeed, the IFS produced a report on the subject as long ago as November 1996. Like many other organisations, it expected the Queen's Speech to contain a reference to a Bill carrying out those reforms which, it was originally hoped, would be through by 2007. No such Bill was mentioned in the Queen's Speech, however, and I am sure the House would like the Minister to tell us what the prospects are for such a Bill.
	There are certain factors which make it quite important. I give two by way of example. First, no appointments of general commissioners have been made for some time. That means that some divisions are in difficulty, which will grow as time goes by. Secondly, it is rather odd to have seen a merger of the two revenue departments, with a continued separation of the two appeal structures. It is the type of tax that determines whether the taxpayer can elect a lay or professional tribunal. It is the type of tax that determines whether the department is obliged to make a written statement of case. That also determines whether the successful taxpayer can recover his costs.
	Everyone agrees that that state of affairs should not continue. The IFS has put forward a suggestion, which the Government may already be considering, that if there cannot be a separate Bill on tribunals, the machinery of a Finance Bill procedure could be used, which could be introduced at a separate stage. I make that point, technical though it may be, because it is not unimportant.
	Turning to the tax law rewrite system, and speaking on behalf of all those involved, I am grateful for the support it has received from Ministers in the Treasury, from the Chancellor and from the Paymaster General. I am grateful for the fact that Ministers have continued to assure us that the project has their support and strong endorsement. It is a reassuring conclusion after the merger of the two departments that no change is suggested.
	I ought to pay tribute, too, to the many outside organisations in the tax community which do so much work on our draft Bills and whose representations help us enormously in formulating them. We are extremely grateful to them.
	Our output has not been insignificant. Apart from completely rewriting the PAYE regulations, we have now produced three separate Acts: the Capital Allowances Act, the Income Tax (Earnings and Pensions) Act and the Income Tax (Trading and Other Income) Act. Those are known within the system by names that are reminiscent of Japanese motor car manufacturers: ITEPA and ITTOIA.
	We are proud of those Acts, which have generated something like 1,600 pages of legislation and 2,400 sections. One of our anxieties is that the Chancellor is struggling to keep well ahead of us in the generation of not rewritten work.
	A question, which I have addressed before, is that many people say, "We warmly welcome what you are doing, but if you spend so much time rewriting the law, why not take more opportunities to reshape and simplify the substance at the same time?". Many of us asked that question when we started out a long time ago, and everyone agrees that the two operations need to be kept distinct from each other.
	However, we are not wholly detached from the process of clarification and simplification. We are obliged and entitled to remove doubts and confusion, to clarify existing provisions and to correct errors. In ITTOIA—to use that affectionate description—161 minor changes were proposed, 159 of which were endorsed by the Joint Committee, which stated:
	"The Bill is a welcome clarification of the existing law relating to income tax in this important area, which will be of value to Parliament, the judiciary, professionals and business people and other users of legislation".
	It went on to state that,
	"the only changes that the Bill makes to existing law are of such minor significance that they need not be referred to the attention of Parliament".
	We are sticking within our remit in that respect. The restriction to "minor significance" leads to consideration of the next major question: what is the case for substantial fundamental simplification? My noble friend Lady Noakes referred to that point in her own speech.
	There has been an encouraging response to the process of amalgamation from HMRC, which states:
	"The priorities of the new department, HM Revenue and Customs, are to improve customers' experience of dealing with the department, to increase levels of compliance, and to increase our internal cost effectiveness. Substantive simplification of tax law contributes to all of these. Any suggestions for changes which bear on these priorities will be particularly welcome and like all suggestions for policy change will be pursued with the relevant tax specialists elsewhere in HMRC".
	That is a significant move, at least in the right direction. In the light of that, we are proceeding with our next round of work.
	Our fourth Bill will be the last one to complete the simplification of income tax. Our fifth Bill will be on corporation tax and will bring our total output to about 3,000 pages. The fact that we can now look forward along that path means that, if we rewrite the legislation, it may or may not be possible to take into account current studies of the structure of corporation tax. It means that we can give some advance indication that the next one after corporation tax may well be capital gains tax. So, again, simplification of the policy can be undertaken in that respect while we are looking at it on the horizon.
	Like the noble Lord, Lord Barnett, and others, I do not get the impression that the Chancellor of the Exchequer is very alert to that consideration of simplicity. I do not subscribe entirely to the view of the noble Lord, Lord Barnett, that Chancellors of all kinds are indifferent to it, but I agree that ex-Chancellors are probably keener to talk about it than Chancellors—I have been doing that for some time now.
	A huge diversity of pressure is building up for something to be done about simplification: two Hardman lectures, one by Adam Broke in 1999 and one by me the following year, which were both reported in the British Tax Review; the IFS report, under the chairmanship of Sir Alan Budd, produced in 2003, which suggested procedures that could enable us to improve performance in that respect; the Chartered Institute of Taxation's proposal for a tax practice committee; and the Conservative Party's proposal, both before and after the general election, for the establishment of a tax law commission. I do not seek to choose between those, but it is high time that we made progress in that direction. This House has emphasised that already. We had a debate on the topic on 23 January 2002, in which a number of noble Lords here today took part. They all made exactly the same point.
	Two propositions seem to follow from all that. There is a growing, well justified case for serious consideration by Her Majesty's Government—the Treasury, in particular—of the specific response, as a matter of urgency, to this call for special structures to consider problems of tax simplification. It now cries out at least for extensive consultation.
	The second point worth making, which the noble Lord, Lord Barnett, and my noble friend Lady Noakes made, is that this House can play a significant part in this field. In doing that, we do not wish in any way to challenge or subvert the supremacy of the other place on questions of fiscal or tax policy, but we think that we can take better advantage of the huge pool of specialised individual knowledge and talent in this House.
	I was surprised to find that there are still five former Chancellors of the Exchequer in the House. The noble Lord, Lord Barber, does not often join us nowadays, but four of us are still around. There are no fewer than 10 former Chief Secretaries of the Treasury, not to mention Permanent Secretaries to the Treasury—I see one with us today. Two of the 10 former Chief Secretaries went on to become Chancellor. There are 15 other ex-Treasury Ministers lurking around the place, quite apart from those on the other side who have been training in tax systems from the opposite end of the telescope.
	We have proven by our performance that this House poses no risk to the other place—specifically by the work of the Tax Law Rewrite Bills Joint Committee; and of our own Economic Affairs Committee, under the experienced chairmanship of my noble friend Lord Wakeham, which he has introduced and explained today. I congratulate him and his colleagues on their work. Despite the severity with which the noble Lord, Lord Rosser, attacked the "tax avoidance industry", all my inquiries suggest that the tax community is extremely grateful for the value of the exchanges taking place and of the evidence given to the Economic Affairs Committee. I have found no evidence whatever, on the other side, to suggest that the Revenue authorities take a different view.
	As the noble Lord, Lord Barnett, pointed out, this House's consideration is of an entirely different quality from that in the other place. So once again I join hands with him in hoping very much that the Minister who is to reply will convey to his right honourable friend the Chancellor our strong feeling that he will hearken to the increasingly clamant case being presented—not just by this House but by almost everyone concerned with tax policy—for serious attention to be given to the various propositions for more stability and simplicity in relation to our tax system.

Lord MacGregor of Pulham Market: My Lords, I too warmly congratulate my noble friend Lord Hamilton of Epsom on his maiden speech and on joining us here after a brief period away from Parliament. He was an excellent and splendid colleague in the other place and I am sure that he will be so here as well.
	I do not intend to talk about the tax avoidance details set out in the Finance Bill because my noble friend Lord Wakeham has already done that admirably in his speech, as indeed did the Minister. However, I have to tell the noble Lord, Lord Barnett, that I do intend to talk about the fiscal balance because it forms the very important fiscal background to all Finance Bills. I was a little surprised to hear the noble Lord observe that, in his experience, Chancellors do not pay too much attention to the detail of Finance Bills. I agree with my noble and learned friend Lord Howe. It is my experience that they did pay attention—perhaps not at the parliamentary scrutiny stage, but in the framing of the Finance Bills. Perhaps Labour Chancellors did not do so, but I can assure the noble Lord that all the Chancellors I knew on our side certainly did. It is therefore a little unfair and sweeping to say that Finance Bill committees in the other place never pay attention to the detail. I suspect that he has forgotten the many hours in the mid-1970s that we spent together in consideration of capital transfer tax. He indicates that he has not forgotten and agrees that it was a pretty detailed scrutiny of the technical detail of a Bill.
	Where I do agree with the noble Lord is that, because of the pressures and time constraints put on the other place, as well as the lack of expertise, the detailed technical investigation and scrutiny of a Finance Bill often does not take place in the depth and at the length that I think the noble Lord would like to see. Therefore, I warmly welcome what has been said by my noble and learned friend Lord Howe about simplification, and his view that the expertise available in this House should be applied to the task. I hope that his message will be conveyed to the Chancellor.
	I intend to talk about the fiscal balance not because I think that it introduces party politics into the issue, but because it forms a very important economic background to any Finance Bill. I want to make only one political point. I have to say that beneath all the rhetoric we hear from the Chancellor, I think that we are seeing evidence of old-style Labour—a style best exemplified by the fact that this Government's spending as a proportion of GDP has risen from its lowest recorded point, at 37 per cent, to a projected 42 per cent now. There are now clear signs that in order to maintain the appearance of prudence that the Chancellor demonstrated in the early years, and which I believe he has now discarded, he has given a number of examples of where he has blatantly changed how the golden fiscal rules are defined and measured. I have not had enough time to look into it, so I do not know what has been said about putting the cycle back by two years as well as what has been said about prolonging the period of the public expenditure cycle. But I suspect that beneath all that, there is considerable concern that the golden rule is now being breached.
	I want to give a clear example that emerged recently where in my view it is obvious that the golden rule and the way in which it is measured have been very substantially distorted, with pressure on the part of the Chancellor to bring that about. Incidentally, the noble Lord, Lord Barnett, said that he did not think that many people were putting clear proposals and figures on the forecast. As he will know, the Institute for Fiscal Studies has calculated that in order to keep within the golden rule—here I refer to the rule of borrowing only to invest and not to fund current spending—the Chancellor will need to raise taxes or cut spending by the very precise figure of £11 billion a year during the next economic cycle which was going to begin in April 2006. That figure does not take account of the worsening of the economy, to which my noble friend Lady Noakes referred.
	I entirely agree with the noble Lord's comments, but I think that the point is more serious than that. I want to give an example of where I think the calculation has been completely altered. As a result of documents disclosed in the High Court action brought by ex-Railtrack shareholders, some specific examples are emerging on the way that the golden rule is being measured. I want to refer to them because this is a very important point.
	According to the documents that have emerged in the High Court, David Rowlands, then the department's director-general for railways, in a memo to Mr Byers at the end of September in the relevant year, wrote:
	"The key issue outstanding here is whether we can be absolutely sure that our preferred model—
	that is, the model that is now Network Rail, a company limited by guarantee—
	"can be classified to the private sector. One way or another, I believe that we can secure private sector classification".
	A special adviser to the Treasury, Ms Vadera, called the need to secure classification in the private sector by October 5—a key date—
	"the joker in the pack",
	and,
	"a deal-killer for this weekend at least".
	We know now that the Treasury and the Chancellor were putting very strong pressure on the Office for National Statistics to classify the model as being in the private sector so that the amount of money involved—to which I shall refer in a moment—did not count as public expenditure.
	The position is worse. Another document revealed that a Treasury official, Jeff Golland,
	"sent an e-mail to Martin Kellaway, the ONS' head of public sector accounts, on 17 September 2001, encouraging him to classify Renewco—
	the proposal coming from the Strategic Rail Authority—
	"as a public sector company. Such a classification would ensure Renewco was blocked by the Chancellor, who would never stand for its debts appearing on the public accounts.
	"Mr Golland told Mr Kellaway new data had come to light showing the lenders to Renewco 'face virtually no risk'".
	Mr Golland went on to state what was being requested of the ONS:
	"A holding reply today would help. It is very urgent. Something along the lines that you want to reconsider the case in the light of this new information, and that it is possible/probable/likely that PSCC [Public Sector Classification Committee] would consider the borrowing to be on the balance sheet.
	"Mr Rowley said: 'Mr Golland made it very clear the sort of answer he would like to receive'".
	If Renewco had to be reclassified as public expenditure, then very clearly that has to be applied to Network Rail, which is even more obviously public sector and public expenditure oriented. I was therefore not surprised to read that the Office for National Statistics, no doubt under pressure from others, was resisting attempts to force it to disclose key documents to the High Court inquiry.
	I draw attention to that because what many of us suspected is now obvious: huge pressure was brought to bear to reduce the correct classification of public expenditure by the £21 billion involved here. It is no wonder that the Chancellor would not agree to the Network Rail solution unless it was clearly classified as not public expenditure because that would have added another £21 billion. But it seems to me that, by all normal standards, it was precisely that. Through the revelation of the documents in the High Court, the truth has been revealed. The cover has been blown. We now learn that huge pressure was applied to the ONS to produce the solution that the Chancellor wanted.
	That is why I strongly support the Conservative policy proposal, referred to by my noble friend Lady Noakes, of an independent fiscal projection committee that would, among other things, independently assess the compliance with fiscal rules and would not be subjected to any pressure from government.
	However, the problem goes slightly wider than that. Let us consider the way in which the figures for PFI projects are building up. I was a strong supporter of the public finance initiative in the early stages, but I always worried about it reaching a huge proportion. It is now building up in a way that would be classified as off-balance sheet financing in the private sector, and the scale of it needs to be properly assessed.
	Following Enron, the off-balance sheet financing of the private sector has been considerably tightened up as per the accountancy rules. It seems that to some extent, one law applies to the private sector and another to the public sector if the classifications can be fiddled in the way that has been done. I should like to hear the Minister's response—he may not be able to give it today—to the documents that have been revealed which, to me, clearly show that public expenditure ought to be £21 billion higher than it is, which has a considerable effect on the fiscal deficit.
	I should like to spend a moment on another issue, on which I declare an interest as a director of Associated British Foods which owns British Sugar. I refer to bioethanol. Last year in his Budget, the Chancellor reduced road fuel duty by 20p a litre for bioethanol, with effect from 1 January this year. I strongly supported that move, although there is a widespread view that it is insufficient, and I hope that that can be reconsidered in a Finance Bill. Because it is insufficient, it is important to find other ways of encouraging bioethanol use in this country, not primarily because of global warming but to fulfil our target of a reduction in carbon emissions of 20 per cent on the 1990 baseline. We are a long way from achieving that.
	Transport is increasingly one of the key contributors to carbon emissions. Road transport emissions are projected to increase by nearly 16 per cent by 2010. Five per cent of bioethanol in a litre of petrol gives equivalent carbon savings of taking 1 million cars off the road. It is a very important contribution.
	Because of the concern that the reduction in fuel duty was insufficient, an amendment to the Energy Bill, which went through this House last year, was proposed by the noble Lords, Lord Carter, Lord Palmer, and myself. Thanks go to the noble Lord, Lord Whitty, who responded so positively to the amendment, which introduced the possibility of the Government being able to apply renewable road transport fuel obligations. That would oblige all sales of road transport to include a proportion of biofuels, something like 5 per cent, and would be similar to the renewable obligation in the energy sector, which is working well.
	That proposal was accepted by the Government and it is now a practical possibility. No further legislation is required. The problem is that nothing has actually happened. This is becoming urgent if we are to meet the requirements of our carbon emission targets.
	Worse than that, other countries are getting much further ahead than us. In Brazil, 24 per cent of the proportion of road fuel comes from bioethanol. In the United States, the figure is 12 per cent. Other European member states are moving way ahead of us. In Germany, France and Sweden, the use of a Ford Focus model which primarily uses bioethanol is growing. Spain and Austria are also ahead of us.
	We now face the sugar beet regime changes which will dramatically reduce the returns from sugar beet. Here is a very good opportunity not only for the sugar beet industry but for UK industry as a whole to contribute towards dealing with the carbon situation. I urge the Minister to make it clear to his colleagues that if the reduction in road fuel duty is insufficient, they should introduce these fuel obligations as early as possible.
	British Sugar has already placed a contract for the design of the UK's first bioethanol production facility, which we hope to see in 2007. However, it will depend on getting the right climate for proper usage of bioethanol as a fuel, and I ask for a commitment regarding the date.
	My main point, however, is in relation to the fiscal balance. I should be grateful for a reply on that.

Viscount Trenchard: My Lords, I am grateful to the Minister for introducing the debate and for giving your Lordships' House the opportunity to discuss what I think will become the second Finance Act 2005.
	I congratulate my noble friend Lord Hamilton of Epsom on his thoughtful and measured maiden speech. He rightly gave credit, as do I, to the Government for their decision to give the Bank of England operational independence. Your Lordships' House has welcomed many new noble Lords to these Benches and to all parts of the House in recent weeks, but we are lucky to have a new colleague of the calibre of my noble friend Lord Hamilton of Epsom. We have not been able to welcome as many new Peers as other parts of the House and therefore my noble friend's experience and wisdom will be much appreciated on these Benches.
	In his introduction of the Bill, the Minister referred to the 50 consecutive quarters of economic growth. I was not surprised to hear him do so because his predecessor was fond of referring the House to that statistic. But, as the noble Lord knows well, the first 18 quarters of that period took place under the previous government, which set the tone and the trend for the opening years of this Government's life.
	The Minister spoke about the abuse of tax codes. However, because the tax system has become so complicated under this Government, HMRC would do well to improve its record of accurately calculating tax codes. I understand that some 29 per cent of PAYE codes are incorrect.
	The noble Lord said a great deal about tax avoidance. Of course, we on these Benches also strongly believe that avoidance is to be avoided and evasion is to be sought out and punished, but he said too little about creating new incentives for savers, providing help for pensions and lessening the burden of cumbersome regulation which is now threatening to strangle the traditional free operation of the City.
	I congratulate the sub-committee on the Finance Bill, chaired by my noble friend Lord Wakeham, on its hard work in producing its excellent and interesting report. I agree with the noble Lord, Lord Barnett, that it is highly desirable that his right honourable friend the Chancellor of the Exchequer should pay more attention to the views of your Lordships' House, especially those of the members of the sub-committee.
	However, I feel that whatever else I have to say will not find favour with the noble Lord, Lord Barnett, because I suspect he will consider it to be too party political. I do not entirely agree with the noble Lord that complex tax questions cannot be party political. Surely one of the great questions that divides our parties today is whether we want big government, which needs high taxes, or small government, which needs less high taxes. To say, therefore, that the whole question of tax can somehow be neutralised and isolated from party politics is rather more altruistic than realistic.
	My views are based on instincts and observations gained during 31 years' experience in the financial services sector. I am sure that noble Lords opposite will not agree with much of what I have to say, but it is nevertheless what I believe.
	Opinion polls continue to show that the Chancellor of the Exchequer enjoys the public's confidence and trust as a manager of the economy. It is true indeed that he has made the public sector a more comfortable place in which to work. Now, more than one in four of those in work is an employee of the state. The number of public sector employees decreased in every year from 1992 to 1998, since when it has increased in every year.
	It is also true that the Chancellor stuck to the previous Conservative government's spending plans for his first two years. However, since 1999–2000, he has increased public spending as a proportion of GDP from 37.1 per cent to a projected 41.9 per cent in 2005–06. The Chancellor's estimated tax and social security revenues for the current year amount to some £462 billion compared with some £297 billion when he took office.
	But there is little evidence of improved public services from all this extra spending, because most of it has been wasted on bureaucratic regulation and a huge increase in non-productive public sector administrators. On 27 February last year, Stephen Timms admitted:
	"Too often, a lot of money has been spent, but very little seems to have been achieved. People will say, 'We've paid a lot of taxes but what has really been achieved with all that money?'".
	The Chancellor has also succeeded in making our taxation system unnecessarily complicated. Two cases in point are the burgeoning system of tax credits, which is inefficient and expensive to administer, and the absurd 19 per cent charge on non-corporate distribution, which is almost totally incomprehensible to most operators of small businesses.
	The Treasury's response to the shambles resulting from the attempt to claw back overpaid tax credits does the Chancellor no credit at all. He is adamant that he will meet his golden rule in this economic cycle, but if he does so, it will only be because he has three times changed the rules applying to the calculation of capital investment and current spending. That does not include the possible changes that we have heard about today.
	Additionally, he will clearly need to continue to increase taxes in order to achieve his forecasts. The Institute for Fiscal Studies has argued that he will have to raise taxes, or cut spending, by as much as £11 billion a year during the next economic cycle, beginning in April 2006. My noble friends Lady Noakes and Lord MacGregor have made some important points in this connection. Clearly, we need an independent Office for National Statistics.
	Against this background, it is surprising that the Chancellor has such a strong reputation for economic management and fiscal rectitude. But Mr Brown's long lucky streak has finally run out. Consumers can borrow no more and the housing market is flat. The Chancellor has frequently used his autumn Pre-Budget Report to confound his critics as the strong global economy has delivered higher profits to British companies and increased taxes to the Exchequer. This year, it seems likely that he will fail and that his critics will have the last laugh. But it will be no laughing matter. It will be a long, hard slog to drag the economy back to the comparatively strong position that it enjoyed at the end of the last Conservative government.
	There is little in this Finance Bill which will improve the situation. The attack on employment remuneration through the grant of securities will affect many small companies which have not yet achieved a level of profitability where they can pay market-level salaries. The owners of many such companies have been able to align their employees' interests with their own. This will be more difficult now.
	It is disappointing that the Government have not recognised the need to introduce tax legislation for real estate investments trusts as a priority. A prudent Chancellor would have ensured that the United Kingdom was up there with the leaders in providing the necessary infrastructure for the development of this investment medium, particularly against the background of a weaker housing market. The higher tax burden that will fall on life assurance companies is most unfortunate, given the difficulties that that industry has faced in recent years. One principal reason for that was the Chancellor's early move to tax pension funds and charities by effectively removing their tax-exempt status.
	In my contribution to the debate on the Address on 18 May, I explained why I believed that the cumulative costs to our pension schemes resulting from the Chancellor's stealth tax raid could be as much as £166 billion. Killik & Co, the private client stockbroker, in a recent paper estimated that the Chancellor's raid destroyed about £300 billion of stock market value. Of course that does not affect the rapidly growing public sector, whose employees still enjoy defined benefit pension schemes. The Economist, a newspaper not generally known for its unswerving allegiance to the Conservative Party, drew attention to that matter on 18 September last year, in an article called "How Labour Wrecked Your Pension". On 25 June this year, an article on pension reform pointed out that fewer employees are building up pension rights in private occupational schemes than in the public sector. Almost half the private defined-benefit active members are in schemes closed to new employees—and, worse, the National Association of Pension Funds predicts a fresh wave of closures of final salary schemes, this time to existing members.
	If the Chancellor had resisted the temptation to attack what were then healthy pension schemes, envied by the world, how much less serious and damaging would the pensions crisis be today. As noble Lords opposite will be quick to point out, the stock market is at a three-year high, but how much higher would it be—as indeed, it ought to be—given the superior economic performance that British companies have been able to deliver this country against the background of the radical reforms and the rolling back of the tentacles of the state achieved between 1979 and 1997.
	Another way in which the Government might have helped both the stock market and pensioners would have been to do something to restore the savings culture and incentives to save to something near where they were under the last Conservative government. The Chancellor deserves credit for deciding after all not to reduce the amount that can be invested in ISAs, but actually he needs to double the amount to £10,000 annually. The gap between what people are saving for their retirement and what they need to save is still widening rather than narrowing.
	It is true that Britain enjoyed a relatively low rate of corporation tax in 2000, at 30 per cent. The previous Conservative government had reduced the rate from 52 per cent to 33 per cent and the present Government then reduced it to 30 per cent. But whereas in 2000, 20 of the 30 major OECD countries had a higher corporation tax than the United Kingdom, today only 10 of them do. Even Germany is planning to reduce its federal business tax rate by 7 per cent.
	It seems that, inadvertently I am sure, the Government are doing their best to kill the goose that lays the golden egg, through their attack on the private equity and venture capital industry. The City owes its continued success in part to the fact that it has provided a comparatively lightly regulated, relatively benevolent tax and administrative infrastructure to those ready to take risks in creating thriving and profitable new businesses. The Treasury's intention to change the rules governing private equity financing will make London a less attractive place for venture capitalists to operate in.
	Finally, I regret that the Government have blocked all attempts in another place to introduce changes to the Bill that would have provided for a binding statutory clearance system. As already mentioned by my noble friend Lady Noakes, this Bill passes interpretive powers to officials and also introduces retroaction that is totally alien to our traditional legal framework. The Government's refusal to change the Bill so as to focus its effects more narrowly on specific tax avoidance issues will create uncertainty for business managers and this will also make London less attractive as compared with other financial centres.
	A much better way to deal with avoidance would be for the Government to simplify the hugely complicated tax system and to reduce the absolute levels of tax. That would do far more to reduce tax avoidance than the cumbersome measures in the Bill described by the Minister. My noble friend Lord Hamilton was absolutely right in what he said on this subject. My noble and learned friend Lord Howe also made the case well for tax simplification.

Lord Northbrook: My Lords, I, too, would like to congratulate the noble Lord, Lord Hamilton of Epsom, on his excellent maiden speech. My previous experience of his political skills was when he was chairman of the 1922 Committee and came to address us weekly at ACP meetings. We always went away cheerful and with our morale boosted by the fascinating snippets of information that he disclosed despite the difficult times after the 1997 election.
	I should like first to declare an interest as an investment fund manager. Once again we are discussing the Finance Bill at the end of the Session in July together with the welcome and now regular companion, the report on it by the Select Committee on Economic Affairs. Once again I should like to congratulate the chairman—this year the noble Lord, Lord Wakeham, and his team—on their excellent and detailed report. The focus of the report on countering tax avoidance is worth while and the conclusions are of great interest. May I politely ask the Minister whether in future years we might have a formal government response to the committee's report for us to consider prior to this debate as has occurred with other Economic Affairs Select Committee reports?
	I feel that it would be appropriate for me to highlight a few items in the report but to focus in the main on other measures in the Finance Bill and then move on to a more general discussion of the taxation framework in the UK after eight years of a Labour government.
	The first key issue in the Bill comes in Clause 11, which contains the Government's proposed restriction to the gift aid scheme. As has been stated by the Minister, this means that the aid will now apply only where the donation results in unlimited rights of admission for a period of not less than 12 months. The Conservative amendment quite sensibly proposed a reduction of this period from 12 to three months. A further amendment was intended to expand the range of charities that may claim gift aid to include facilities which have interactive experiments with an educational purpose. The Government, I am pleased to say, did accept the purpose of the latter amendment but turned down the former on the basis that it would enable charities to claim gift aid on what were effectively admission fees. Will the Minister explain the rationale behind that government decision as our amendment seemed entirely reasonable?
	The next important issue, Clause 12 and Schedule 2, is dealt with well in the Select Committee's report. I agree with its conclusion that employees remunerated by a convertible security should not be taxed at a greater rate than to the extent of the correct tax and national insurance forgone.
	I then move on to Clause 18, which covers authorised investment funds and specific powers. There are two points I wish to make here. First, despite many promises by the Government to introduce tax legislation to give effect to real estate investment trusts (REITs), as the noble Baroness, Lady Noakes, and the noble Viscount, Lord Trenchard, stated, such legislation is not included in this year's Finance Bill. Other countries have REITs and tax regimes for them and I am concerned that the UK property industry is at a disadvantage and could seek to relocate abroad. The Government would not accept our proposal for a new clause to introduce legislation for the creation of REITs, and I would like to ask the Minister: what is the reason for the inordinate delay?
	Clauses 16 to 23 allow for changes to the system of taxing authorised investment funds to be made by regulation rather than by legislation, which gives too much power to the Inland Revenue to make the rules rather than subjecting them to parliamentary scrutiny.
	Can the Minister say why the Government are proceeding by that route?
	Clauses 24 to 31 cover avoiding tax through arbitrage. The clauses cause our party major concern due to their wide-ranging nature and the powers given to the Revenue. They introduce substantial Inland Revenue discretions and, consequently, substantial uncertainty for both UK multinationals investing abroad and for inbound investors. The Shadow Chief Secretary stated in the other place that,
	"the legislation is far-reaching and has a very wide scope . . . We are talking about major players who are vital to the health and well-being of the UK economy. There is scope for huge collateral damage, both to the financing of investment deals and . . . to the UK's reputation as a stable and predictable tax jurisdiction . . . It appears to some people that the UK Government are seeking to appoint themselves the world's policeman on arbitrage, to the uncertain benefit of the UK Treasury in the long run".—[Official Report, Commons Standing Committee B, 23/6/05; col. 83.]
	Clause 39 and Schedule 7 are covered in the Select Committee's report, and I could do no better than to highlight some of its conclusions. The report states:
	"we remain concerned at some indications that anxieties which have been put to us—including, for example, the apparent harm to the position of group finance companies carrying out normal foreign exchange risk operations—have not been put to HMRC or, if they have been, have not been fully taken on board and responded to".
	The Shadow Chief Secretary to the Treasury commented:
	"The reason that it is controversial . . . is that practitioners and industry representatives are concerned that several provisions in the schedule mean that the focus of the legislation is still too wide and in some cases will lead to uncertainty. The Bill will need to be clarified by the guidance or rules issued by the Revenue, which do not have the force of law and, thus a less certain climate would be created than if the whole matter were dealt with in the primary legislation".—[Official Report, Commons Standing Committee B, 28/6/05; col. 200.]
	Does the Minister agree with that argument?
	Clause 40 and Schedule 8 prevent private equity and venture capital groups obtaining excessive tax deductions from loans made from overseas to the businesses they own. The Shadow Chief Secretary stated that the Government were, in effect, using a sledgehammer to crack a nut. He said that, while claiming that they wish to,
	"address narrow concerns. The industry's fear is that the Bill is potentially wide-ranging and could have significant negative impacts on both the UK private equity and venture capital industry and UK businesses that are financed by private equity or venture capital".—[Official Report, Commons, 13/6/05; col. 71.]
	Can the Minister allay the industry's fears?
	Two final clauses received major attention in the other place. First, in Clause 42 and Schedule 9, covering life companies taxation, once again the Government are leaving much of the detail to secondary legislation. Can the Minister explain why that needs to be the case? Secondly, regarding Clause 49 and Schedule 10, which cover stamp duty land tax, can the Minister say why they are necessary and why property cannot be transferred around in a group for what is regarded as normal and acceptable tax planning reasons?
	There is no doubt that one of the big achievements of the Labour Government has been to complicate tax law. As I have stated previously, almost every year, the Finance Bill seems to get longer and longer. Between 1965 and 1986, the length of the Finance Bill was, on average, 151 pages. From 1997 to 2004, the average length has been 346 pages. As the Bills get longer, they become more complex, resulting in increased opportunity for legitimate tax avoidance.
	Politicians should take into account the work of Professor Arthur B Laffer, the originator of the Laffer curve, which was designed to illustrate the relationship between the amount of revenue raised by a particular tax and the rate of tax. Broadly speaking, the yield from a tax will increase as the rate moves up from 0 per cent to a certain rate at which the overall yield will begin to reduce. That is, first, because people will be less willing to work to get the income to pay the tax. Secondly, the yield will reduce because of tax evasion for which the apparent reward is greater the higher the tax rate, even though the risks of criminality are great.
	The third reason is legitimate tax avoidance. There seems to be an increased body of evidence that high tax rates lead to greater tax avoidance. The Government would do well to heed this. On the one hand, where they have lowered taxes on the corporate tax front—although not enough, as I will discuss later—and business capital gains tax, these measures have been well received and tax has been paid. However, the continued obsession over tax avoidance schemes, while superficially seeming sensible, actually create further loopholes which will be exploited by the army of advisers who specialise in these schemes. I am sure that the Minister, bearing in mind the strictures in his opening speech, criticised these when he worked for his accountancy firm which, I understand, has a flourishing division promoting them.
	This brings me to the possibility of a flat tax—I see the noble Lord, Lord Patten, in his place—which has been adopted by countries such as Russia and Estonia and has been seen to be working. Will the Minister summarise why the Government are opposed to this great simplification of the tax system and why it could not be set at a rate which is revenue neutral and what that rate might be, bearing in mind that he said in the flat tax debate that at 22 per cent £50 billion of tax might be lost?
	The Institute of Chartered Accountants' tax faculty produced an interesting memorandum on the Finance Bill at the end of May 2005. It stated:
	"We are concerned about the cumulative effect of lengthy complex and onerous tax legislation on the international perception of business people that the UK is a good place to do business. We welcome the measures introduced in recent years to encourage inward investment; for example, the substantial shareholding exemption and the rules for intangible property. However, we are worried that this Finance Bill will act as a disincentive to inward investment".
	The article goes on to express a key principle that the UK tax system should be competitive. This means, in the institute's view, three points: first, the UK should have reasonable rates of tax; secondly, it should provide full and effective relief for overseas income and taxes; and, thirdly, it should be simple, straightforward and with the minimum of red tape. On the first point, the institute expresses concern that the corporation tax rate is not reasonable compared to, for instance, the Republic of Ireland's rate of 12.5 per cent and believes that the republic has been very successful in attracting business that would have probably come to the UK.
	On the second matter, it points out that in respect of full relief for overseas income and taxes most European countries have an "exemption" system for foreign source income whereas the UK has a credit system of double taxation relief. It believes that the UK's credit system is more difficult to understand and will tend to discourage business.
	The institute states that in 2000 the UK made some highly controversial changes to the rules which made the system highly complicated. The arbitrage rules of Clauses 24 to 31 and Schedule 3 to the latest Finance Bill now add yet more layers of complexity. Indeed, the institute believes that these more complex rules tip the scales of competitive advantage in favour of the USA and against the UK.
	On the third point, the institute commented:
	"We suspect the estimates of additional compliance costs are too low . . . Highly complicated legislation will increase the cost for businesses and foster the worry that the UK is becoming an expensive place to do business".
	The institute's final point—and mine, too—is its concern over the ever-increasing reliance on secondary and tertiary legislation; for example, in Clause 1. We have of course seen this as a major stealth trend in many other Bills since 1997 to bypass detailed parliamentary scrutiny. The institute writes,
	"Our first tenet is that tax legislation should be enacted by statute and subject to proper parliamentary scrutiny by Parliament. Whilst in some cases delegating powers to secondary legislation allows time for consultation and further refinement, too often this is not the case".
	In summary, as usual, the devil in the Budget is in the detail and superficially a rather dry and dour Finance Bill conceals measures that could seriously affect the UK business environment.

Lord Sheldon: My Lords, the basis for the debate is the economic situation. There have been a number of voices pointing out that although there have been 51 quarters of growth, some of those were before the Chancellor took office. But of course there have been many spurts of growth in the past which many of us will have seen. What they have all had in common is that they petered out in the misery of unsustainable inflation. This is what makes this one unique for our times.
	That in particular was the success of the Chancellor of the Exchequer. I do not believe that the golden rule needs to be set in such firm concrete but I am in favour of what might be called a "silver rule" which allows for sensible deviations in the light of changed circumstances. Always, from time to time, there must be room to allow for this.
	It used to be said that the high rates of taxation were the encouragement to tax avoidance schemes, but even now that the tax rates are so much lower, the tax avoidance industry has continued to grow and to become ever more sophisticated and well paid as tax avoidance and tax planning devices have developed.
	There is, as we all know, the perennial problem that anti-avoidance provisions impose the burden on industry, and particularly the burden on smaller businesses. Large companies which can employ and pay for specialist advisers, lawyers and accountants can deal more easily with complex provisions. Offering their expertise has been a very profitable business.
	The difficult task for the Revenue and Customs is to discourage artificial devices which do not put too high a burden on business and do not impede genuine arrangements. This is a never-ending burden and success can never be assured. Of course, the Revenue and Customs cannot hand out advice. Accountants and lawyers are there for that purpose. Although one might have wished for a situation in which pre-clearance could be secured, this, not surprisingly, would lead to a testing of artificial schemes to find out which could get through and which loophole might be uncovered.
	One aspect which must be a cause of some disquiet is the matter of retroaction where what may have been undertaken quite legally becomes what the taxpayer may never have anticipated. I understand the use of a press release which indicates what may be coming so as to inform the taxpayer, but if there is any retroaction to a period before that, as was claimed during the debate in another place, it is a matter that we must look at with some apprehension. There is something that needs to be examined here.
	I, like many others, have been concerned about the five-day reporting time limit in providing "bespoke schemes". We dealt with this last year and heard of the difficulty and resource cost of meeting the requirements. We heard that "an awful lot" could happen in a 30-day limit which could lead to a significant loss of tax. We came to the conclusion that more time was needed to assess the experience of the disclosure rules. I expect that we may need to look at this again next year.

Lord Newby: My Lords, I, too, congratulate the noble Lord, Lord Hamilton of Epsom, on his maiden speech. As secretary of the Yorkshire and Humber All-Party Group of Peers, for a moment I was looking forward to welcoming him to our group, believing that perhaps he was a closet Yorkshireman. However, in view of his wearing the white rose, we may perhaps make him an honorary member, if not a member by birth.
	I welcomed the noble Lord's comments on the need to simplify taxation. It is a pity that he was not in your Lordships' House when we had the debate on a flat tax, which the noble Lord, Lord Patten, recently initiated. No doubt we will discuss that issue on a number of future occasions and that debate was a good introduction to it.
	I say to the noble Lord, Lord Northbrook, although not to answer the question he posed to the Minister, that the challenge to everybody who is in favour of a flat tax, if it is to be revenue-neutral and at a level which is deemed acceptable is to explain which allowances you are going to abolish. The kind of allowances that one might logically abolish, such as those on ISAs, pensions or grant aid, are generally thought to be desirable, either to promote savings or for other public policy purposes. So, while the flat tax has some attractions, it does pose some intellectual and practical challenges, to which no doubt we shall return.
	I suspect that this debate will represent the end of an era. It is the last major economic debate before the Government have to admit that they have not met their economic forecast. When I hear the Minister say, as he and his predecessors have said over the years, that growth is "in line with government forecasts", I think that he should savour that phrase as it may be a while before he can use it again.
	The evidence for the slow down in the economy is accumulating inexorably. The consensus forecast a few weeks ago was that growth this year would be about 2.4 per cent. This week the British Chamber of Commerce is going to suggest that it will be about 2 to 2.1 per cent. Certainly all the figures suggest that. Wherever you look at the components of growth, the situation is poor. On manufacturing, output in the three months to May was 1.9 per cent below the previous three months. For the first time since 1980 all 13 manufacturing sectors fell.
	On services, the BCC survey on 14 July showed weakening across the board. On jobs, the claimant count has risen for five months. On housing, Bovis claims that its prices were down 10 per cent in the first half of 2005. On any view, at best, house prices have stalled and are probably falling generally. Retail sales, as everyone knows, are very flat.
	Looking forward, what prospects are there of these trends being reversed in the short to medium term? Consumption over the past four years has constituted over 80 per cent of the cumulative increase in demand. All the evidence is that that is likely to remain subdued. Household savings are already at a historically low level at 6 per cent of disposable income; the ratio of house prices to earnings is at an all-time high; and household debt, about which we have spoken on many occasions, is now 155 per cent of disposable income—up from 117 per cent in 2001. It is the highest in the G7. Common sense suggests that this level of debt in uncertain times is likely to fall rather than to increase as people adjust their expectation and consumption patterns.
	If personal consumption is likely to remain subdued, it is pretty clear that government consumption will certainly not be able to increase further to take up the slack. Over the past four years, government consumption has risen at a compound rate of 3.5 per cent. While one can argue whether that is too high or low, it surely is not going to rise.
	How serious will be the downturn? Needless to say the economists are falling out about it. One is either a pessimist and thinks that it will be very serious or an optimist and thinks that it will be serious but not that serious. One person who thinks that it will be serious is the Chancellor of the Exchequer. He is already preparing his exit clauses. His announcement today that he has arbitrarily moved back the start of the economic cycle by a couple of years purely for the purpose of calculating the golden rule absolutely demonstrates that. It makes a mockery of the golden rule. It will, I suspect, dissipate the small amount of credibility that the Chancellor established when he created the rule.
	The move shows the need for independent scrutiny of fiscal policy, as mentioned by the noble Baroness, Lady Noakes, and a matter which we have discussed on a number of occasions in your Lordships' House. For far too long the Chancellor has set his own tests and then taken credit for having passed them. He should admit this time that he has made a mistake.
	Although the NAO will be allowed to audit the Chancellor's decision, we do not believe that that is enough. We think that the NAO should be handed the responsibility of deciding the start and end dates of the economic cycle and that it should have access to the Treasury's economic data in order to do so properly.
	It is important that the NAO should have this power unfettered. I thought that the speech by the noble Lord, Lord MacGregor of Pulham Market, in which he talked about the pressure brought to bear on ONS in respect of Railtrack, exemplified the point that we on these Benches and the Conservatives have been making for a number of years. On bodies such as the ONS, if the senior people are appointed by the Chancellor, they are beholden to him at every turn, and under pressure will bow to his will. Frankly, that is not an acceptable way of doing things.
	The Chancellor has also announced that he is going to delay the spending review for a year. A number of completely ridiculous suggestions have been made about why he is doing that. I think that he may be making a rod for his own back. What he is saying is that the current planned increases in expenditure, which are considerable, will be allowed to run to 2007–08. So, if he does find himself, in difficulty under the golden rule—he is likely to do so, despite having moved the goalposts—he could keep it only by raising taxes. By pushing the point at which he can have flexibility on the expenditure front, it seems that he may have boxed himself in. Incidentally, I do not think that either he, or we, should adopt the new Barnett formula, which is: "When under pressure, relax the golden rule". I suspect that if that suggestion had come from these Benches we would have been accused of being profligates.
	On the Finance Bill itself, the leitmotif, if you like, is the question of tax avoidance. I very much agree with what the noble Lord, Lord Rosser, said about one dog which does not bark in the Finance Bill; namely, the situation in respect of self-invested personal pensions. There is growing evidence that the way in which people are being encouraged to include buy-to-let housing, vintage cars and wine collections in SIPPs will lead to a significant—I was going to say "drain" but noble Lords will know what I mean—on the tax revenues.
	It seems to us that SIPPs should include more exotic assets and that regulations should postpone the inclusion of residential property until properly constituted and regulated real estate investment are available.
	The rest of the anti-avoidance provisions are dealt with largely in the report of the Select Committee on Economic Affairs. Having sat on the committee for the two years previous to this one, I read the report with considerable interest. I congratulate the committee on providing and producing a report in such a timetable. The report shows both the strengths and the weaknesses in the way that we currently deal with the Finance Bill in your Lordships' House. The strengths are obvious.
	It is a thoughtful and considered report and it makes measured suggestions which any sensible Chancellor and revenue department will take up. Its weakness is that in the time available it is able to look at only one aspect of the Finance Bill. Again I paraphrase the noble Lord, Lord Barnett: "Is anybody listening?". The idea of the noble Lord, Lord Wakeham, writing to the Chancellor saying, "Would you please like to invite us round for tea?" is charmingly English. Perhaps the Chancellor might do so. But the idea that the Chancellor is going to respond positively to the suggestions of your Lordships' committee, given his track record, is, I fear, fanciful.
	I have a suggestion as to how we can improve your Lordships' consideration of the Finance Bill, which would get around this problem. For a number of years I have been advocating the idea of splitting out the main tax measures in the Budget—that is, the rates and scope measures—from the tax administration measures, and having a taxes management Act. This Act could be consulted on in advance, and could be considered, both here and in another place, for longer.
	The normal Treasury response to this suggestion is that it is impossible to split the Finance Bill between the two types of measure. However, that is exactly what has happened this year. The Finance Bill produced before the election had all the rates in it, while the Finance Bill being considered at the moment has virtually none of that—it is all tax administration.
	Unwittingly, the Treasury has proved the point that it is possible to divide tax matters into revenue-raising and the way in which the system works. If we did that, this House would then be able, under the conventions and the Parliament Act 1911, to scrutinise and amend the provisions for the management of taxation, just as it was able to amend the way in which Her Majesty's Revenue and Customs will collect taxes. I put that forward as a modest suggestion for the Government for the future.
	We wish the Finance Bill on its way today, and we look forward to coming back to more robust debates on the state of the public finances in the autumn.

Baroness Wilcox: My Lords, I am delighted to follow the noble Lord, Lord Newby. We agree with much of what he said. I always seem to follow him in these debates, and he always seems to be standing there on his own, but he does so well. Let us hope I can do as well.
	It has been an interesting debate, with detailed contributions based on a wealth of experience, and enhanced by the maiden speech of my noble friend Lord Hamilton of Epsom. I congratulate him. He is well known to many of your Lordships, and his speech today has made us all hope that we will often hear him in our debates. I particularly appreciated his attitude to the Whips' Office.
	I thank the noble Lord, Lord McKenzie, for introducing the Bill, and congratulate my noble friend Baroness Noakes on her response. She covered with her usual skill the web of interrelated issues that are causing concern both here and in the business world.
	The increasingly important and influential Economic Affairs Committee, now chaired by my noble friend Lord Wakeham, brought out its report in only 27 days, which is quite marvellous. We on these Benches welcome the report; it is a great contribution and this valuable work should continue. We congratulate him and his colleagues, despite the fact that the report almost got obscured today, as the noble Lord, Lord Barnett, seemed to wander off into the political thicket to attack my noble friend Lady Noakes, as she spoke about the Chancellor's fiddling of his golden rule. I am sure that the many comments he has heard, including those from the noble Lord, Lord Newby, only reinforce the fact that she was right to do so and was not being "ultra-political", as I think he accused her of being.
	My noble and learned friend Lord Howe spoke of tax rewrite and simplification. I will listen with interest to the Minister's reply to his question on behalf of the IFS about what happened to the promised legislation to integrate the tax appeals system now that the Revenue and Customs departments have been merged.
	My noble friend Lord MacGregor spoke chillingly, I thought, of Railtrack, the shareholders' court action and all that that is revealing. He endorsed the call from the Conservative Party for an independent fiscal projections committee, a call echoed by my noble friend Lord Trenchard—and, I think, by the noble Lord, Lord Newby.
	My noble friend Lord Northbrook gave an excellent summary of our problems with this Finance Bill, and so I will not, in the time available, take up too much time talking about everything in general. I shall stick to a couple of points and key issues.
	One theme has been mentioned in one form or another by many this afternoon. It can be recognised by those of us who take part in these debates as an old friend, and was also an issue of heated discussion in the other place. That theme is particularly close to the heart of my noble and learned friend Lord Howe: the need for tax simplicity.
	We must all be thankful that the election has at least resulted in a split and slimmer Finance Bill than last year's mammoth—indeed, record breaking—634-page Act. As my noble and learned friend pointed out, however, it is just as complicated as ever, and focuses predominantly on tax-avoidance provisions. The chartered accountants have described our tax law system as "spiralling out of control", while David Martin from the Centre for Policy Studies has called it "obscure and ramshackle".
	Where are the Government going with all of this? I can tell your Lordships one way. Only one sector will benefit if the Chancellor continues in this vein: the professional services market. Membership of the Chartered Institute of Taxation has risen from 9,000 to 13,000 in the last decade, while, in the last five years alone, the Inland Revenue's budget has more than doubled in real terms.
	In effect, taxpayers are suffering a double hit. They are paying for professional services to advise them through the mire of paperwork needed to ensure they are paying the correct amount, while the public purse is spending increasingly more to manage the complex system and layers of regulation that have been put in place. Yet the Government still refuse to grasp the nettle of simplification.
	In another place, my honourable friend Mark Field proposed a new Clause 4, in the final stages of the Bill, that required the Treasury to prepare and present to Parliament a proposal for the establishment of a tax law commission to act in parallel and to complement the work of the Law Commission. This was not even a commitment to establish such a commission, merely to look into a proposal. The idea was founded in 1977 by my noble and learned friend Lord Howe, and highlighted again in his Hardman lecture in 2000.
	As my noble and learned friend has explained this evening, he proposes a two-pronged approach to operate alongside the rewrite process: a reduction in the volume of new tax legislation, and a project to tackle simplification on a systematic and detailed basis. I think your Lordships will agree that we have seen neither from this Government.
	It was never the intention of the rewrite project itself to achieve simplification of the tax system. Indeed, Roger Kerridge, professor of law at Bristol University, has stated:
	"the rewrite, by itself, reproduces existing law, however absurd, however illogical. It does not involve change".
	I hope the Minister will agree that what the rewrite has demonstrated is the imperative need for simplification to rise up the agenda. Will he reinvestigate my noble and learned friend's idea, which received strong support in the Budd committee's report?
	One potential method of simplification raised by my noble friend Lord Patten, in an Unstarred Question last month, is the introduction of flat taxes. This has already been mentioned by my noble friend Lord Hamilton of Epsom in his maiden speech, and again by my noble friend Lord Northbrook. Flat-tax systems, as many of us know, have been successfully introduced in Estonia, Lithuania and Latvia. Russia, Serbia, Ukraine and Poland have all been quick to follow suit. A flat-tax system could be a great incentive to investment and the starting up of new enterprises. Arguably, it is simple, transparent and, in the words of my noble friend, "makes self-certification child's play".
	Research by the Adam Smith Institute has highlighted the progressive role of such a tax system. It could lift a large number of low-income taxpayers straight out of the system, reducing dependency on the current complex means-tested income-related credit systems that is socially, economically and politically undesirable. What steps have the Government taken to investigate potential implementation and effect of flat taxes in this country?
	The heavyweight and much-respected reports from the Parliamentary Ombudsman and the citizens advice bureaux condemning the present tax credit system are the most recent examples of the dreadful mess that can result from a tax system that is too complicated for both the individual and Her Majesty's Revenue and Customs to operate.
	We on these Benches know it is time to return to a system that is certain, efficient, competitive and fair; one that makes it harder to avoid tax and increases transparency and democratic scrutiny. This country needs better legislation which leaves the British people free in their day-to-day lives. We on these Benches believe that the only way to work towards this, as my noble friend Lady Noakes has so convincingly said, is to make simplicity the new foundation stone on which we build.

Lord McKenzie of Luton: My Lords, I thank all noble Lords who have participated in today's debate. I particularly thank and congratulate the noble Lord, Lord Hamilton of Epsom. I was remiss earlier in not anticipating his maiden speech. It was a hugely impressive contribution and outlined some of his vast experience, both in another place and elsewhere. We look forward to his continuing participation in our deliberations on matters of the economy, and the Finance Bill in particular.
	I should like to respond to as many of the points raised as possible and I shall take a moment to reflect on the measures in the Bill and put them into context. The Government's aim through these measures is clear cut. We will promote fairness while locking in our current economic stability and never putting it at risk. In addition, we will reduce the regulatory burden on business and consequently boost the nation's productivity and growth. As my right honourable friend the Chancellor outlined in the Budget debate, and as I briefly reiterated in my earlier remarks, Britain now has a foundation of fiscal strength, enabled by our decision in 1997 to reduce the national debt.
	This Finance Bill reiterates the Government's intention to ensure that our tax system is both fair and competitive, and it firmly focuses on tax avoidance and modernising legislation to respond fairly and effectively to changes in the modern world.
	I shall now deal with some of the detailed points raised by noble Lords. The noble Baroness, Lady Noakes, welcomed the report of the Economic Affairs Committee, as do the Government. She touched on, as did other noble Lords, the request for a more substantial role for the committee. It is with some hesitation, as a relatively new Member of your Lordships' House, that I point that there is the issue of the privilege of another place, the elected House. We need to be mindful of that in wishing to expand the role of the sub-committee here.
	I fully reject the assertion that the economic cycle has been fiddled by the announcements to date. I think the expression was—

Baroness Noakes: My Lords, it was "cooking the books".

Lord McKenzie of Luton: My Lords, I reject "cooking the books", "dodgy accounting", and all such notions. The reality is that, in Budget 2000, the Treasury made a provisional judgment that mid-1999 was the start of the current cycle. That judgment remained provisional through to Budget 2005.
	Last month, the ONS released significant new data revisions, which have significantly changed the profile of the economic cycle. An economic cycle is comprised of two distinct phases in which output is above, and then below, trend. However, output can sometimes reach an on-trend point without decisively passing through trend. In such cases, on-trend points do not necessarily mark an end or a start date for a distinct phase in the cycle. The released ONS data were revisions to gross value added. The basis on which the calculation was done has not changed. We have updated data which came from the ONS. We do not give a running commentary on the golden rule. I am sure noble Lords will anticipate the Pre-Budget report with interest.
	As we have said in previous debates, the Government's and the Treasury's forecasting record has been better than most independent forecasters. I think the European Central Bank quite recently indicated in an analysis that the forecasting of the Treasury was the best of all the EU economies at that time. The next Pre-Budget report will be out in a few months.
	A question was also raised about constant fiscal rules being badged as avoidance and driving away investment. Which of the anti-avoidance measures in the Bill would the noble Baroness, Lady Wilcox, not wish to see? This is not about trying to fill any alleged hole in the public finances. We have had that assertion time and again. The Government's public expenditure plans are fully affordable. Indeed, that is what Budget 2005 has demonstrated, and we will see what the Budget Report later this year elicits.
	Tackling avoidance is about making sure that people pay their fair share of what a sensible and fair tax system should be. Since 1997, the Government have promoted enterprise by reducing corporation tax rates from 33 to 30 per cent and have also targeted measures through the R&D tax credit. The UK's overall tax burden is well below the average for both the EU 15 and the EU 25.
	A question was raised about how the Government cannot expect household consumption expenditure to slow down. The UK continues to experience the longest unbroken expansion on record, and consumer spending will continue to be supported, in our view, by domestic macroeconomic stability and a robust labour market. Consumer confidence is above its long-term average. Since the global slowdown in 2001, consumption growth has averaged 0.8 per cent in the UK, compared to 0.1 per cent in Germany, 0.6 per cent in France and 0.2 per cent in Italy.

Baroness Noakes: My Lords, those statistics are all very interesting. Just so that we can be quite clear, is the Minister saying that the Government have no wish to change the forecast they made in Budget 2005 regarding household consumption?

Lord McKenzie of Luton: My Lords, the Government are not, and should not be, in the business of commenting on every set of statistics that come out during the course of a year or period. We have set occasions during the economic cycle when there is a Budget Report and a Pre-Budget Report, and they are the times for these forecasts to be reviewed in detail.
	The noble Baroness, Lady Noakes, said that too many changes were being made through regulations, particularly in relation to insurance companies, and that such substantial changes should be made through primary legislation. Regulations provide flexibility to respond to situations where there can be a regulatory change; for example, where the FSA has changed its rules. This happens frequently in life assurance, where FSA changes affect the tax rules. The life assurance apportionment regulations have a sunset clause which was specifically introduced so that it runs only for one year. Primary legislation will be needed next year to replace these temporary regulations.
	A question was asked about how the Government can expect manufacturing in the economy to keep on track with their forecasts. Business investment in manufacturing firms rose by 4.4 per cent in quarter one of 2005, compared to quarter one of 2004. Manufacturing and export volumes rose 5 per cent in the three months to May 2005. The UK continues its largest expansion on record, and GDP grew by 2.1 per cent in the year to quarter one of 2005.
	The noble Baroness, Lady Noakes, and other noble Lords asked about the delay in introducing legislation to do with real estate investment trusts. The Government have said that they aim to legislate for real estate investment trusts in the 2006 Finance Bill, subject to resolving the technical issues outlined in the Budget discussion paper and finding a workable model that meets the widely accepted objectives, including reform at no overall Exchequer cost. That framework and timetable is understood to be welcomed by the industry.
	The suggestion was made that the inheritance tax guidance is over complicated. There is nothing burdensome or intrusive about the IHT form. It is a four-page form, the first consisting of basic factual questions. Even if there were no IHT requirements to fulfil, that is the sort of information that executors would need to be on top of the circumstances that they face. The guidance material takes people through all that they should consider to get it right first time.
	Inheritance tax affects only about 6 per cent of estates in the UK and as a percentage of GDP has remained pretty much constant over an extended period.
	The noble Lord, Lord Wakeham, introduced the committee report and I thank him for his efforts in chairing the sub-committee and for its excellent work. The topic it chose was very relevant to our deliberations. The magnitude of the yield at stake here is very significant. I am pleased that it reasoned that the disclosure rules ended up in a significant and material fashion and added to combating tax avoidance.
	On employee securities, the committee was right to be concerned about the scale of what was going on and welcome the support on backdating. The noble Lord was right to say that 27 days until publication represents a sterling effort.
	My noble friend Lord Barnett ranged over what would happen if the golden rule were breached a little. We do not give a running commentary on the golden rule and it will be updated at the Pre-Budget Report stage. It was interesting to hear that, back in 1974, there was not much scrutiny of Finance Bills. When the current Chancellor of the Exchequer was shadow Chief Secretary to the Treasury, I spent a brief while considering the 1988 Finance Bill, a fairly substantial tome. It was a few of us versus the might of the Treasury. I think it is true to say that we came second.
	On the Government's response to the report, we dealt with that, as we did in the previous two years. The Chancellor takes those matters very seriously and I will certainly ensure, as I am sure will my noble friend, that those matters continue to be brought to his attention.
	The noble Lord, Lord Hamilton, in his maiden speech, supported the independence of the Bank of England. That is a key part of a sound and prudent policy and a key plank of monetary policy. The UK Government's position on the euro is that we will join when it is in the economic interests of the UK to do so—when there is a clear and unambiguous case for us to do so. We had an interesting debate on the euro just a couple of weeks ago in your Lordships' House. I do not subscribe to the view that it is a dangerous economic experiment; what has happened in Europe is that the UK's case for greater flexibility is underlined by the existence of a single interest rate.
	Various noble Lords mentioned flat rate tax systems. I will try to answer those points. Examples cited are those such as Estonia. Those are countries with emerging economies which may not have previously had a robust income tax system. Often, those regimes have other indirect taxes—such as social security taxes—that substantially supplement the revenue going to the Exchequer.
	Simplification comes not so much from having a single rate as from doing away with lots of reliefs. That is the point made by the noble Lord, Lord Newby: if you are to have fairness in a flat rate tax system, you must have a significant personal allowance. That is the difficulty. The Adam Smith model showed that if you did that and set it at a rate to remove some of the unfairness to people at the lower end, its cost would be about £50 billion per year. That is why we are not encouraged by that.
	The noble Lord, Lord Hamilton, talked about the tax burden in the UK. The UK is a relatively lightly taxed economy. The latest OECD figures from 2004, which relate to 2002, show that UK taxes on corporate income plus employers' social security contributions were 6.3 per cent of GDP—the second lowest rate of the erstwhile EU 15 countries. I believe I am right in saying that we have the lowest corporation tax rate of any of the G7.
	My noble friend Lord Rosser said that his review of the evidence to the committee was an eye-opener. I welcome his powerful contribution. It is absolutely right that he drew to attention to the fact that what is going on is a moral as well as an economic case. He was right to be angry about some of the examples cited. The other day, someone said to me that in some of these schemes all you needed to do was to dial up to get the amount of the tax loss you wanted when there was no change in your economic circumstances. In no way can we or should we condone that. Some people who are availing themselves of those schemes are in receipt of big bonuses—bonuses that people would not earn in a lifetime. For them to seek to reduce their income tax and national insurance liabilities in that way is not to be supported in any way.
	My noble friend raised the issue of self-investment personal pensions and their possible exploitation. We must keep that under review. The noble Lord, Lord Newby, also raised that point. Some of the financial press may be overstating the situation. We must recognise that for residential property to enter such a scheme, only 50 per cent of the value of the pension fund can be raised as a loan to buy the property; it becomes an asset of the pension fund; therefore access to that property would give rise to an income tax charge on those who avail themselves of it. There are various other restrictions. Only 25 per cent of the capital in the home can be taken as a lump sum at retirement; the rest can be taken only as a taxed pension. The Government want to keep that under review.
	That illustrates that as soon as the Government do something to simplify the tax system to encourage saving, an army of people seek to exploit that to gain advantage from it that was not intended and could challenge the whole system.
	The noble and learned Lord, Lord Howe of Aberavon, was kind enough to notify me in advance of the point he raised about the appeals process. It is absolutely right to say that the three appeals bodies for tax: the general commissioners, special commissioners—each ex-Inland Revenue—and the Customs, VAT and duties tribunal are to be amalgamated. That is the Government's wish and a matter that the Department for Constitutional Affairs seeks to take forward. It is currently working on the legislation and aims to introduce a Bill at an appropriate stage. Legislation for those reforms will be brought forward when the parliamentary timetable allows.
	On the point about the appointment or lack of appointment of general commissioners, as I understand it, since the introduction of self-assessment, the caseload for general commissioners has declined substantially, such that there are sufficient numbers of general commissioners generally to cover all cases, but where there are geographical variations in workload, divisions are being merged or cross-appointments of general commissioners to other divisions are being made.
	I congratulate the noble and learned Lord on the work that he and others have done on the tax law rewrite project. It has already made a substantial difference in several areas. As he said, it does not substantially change the basis of tax law; it is tidying up and dealing with minor changes; but it is making legislation more readable and understandable.
	On what more should be done on simplification, we get to the heart of what a tax system should be about. I agree with the components of a tax system outlined by the noble Baroness, Lady Wilcox—being certain, fair and efficient. All of that is right, but there is an inevitable inconsistency between simplicity and fairness. We see that in some provisions of the Bill. It cannot be argued that complexity of the system has in any way engendered the scams that have taken place in relation to income tax and national insurance. Whatever the structure of the tax system, people would seek to do that.
	I also acknowledge the huge experience in your Lordships' House—I refer to Members who have in the past been Chancellors of the Exchequer or Chief Secretaries. We must recognise that we, as a House, have a limited role in these matters and it would be constitutionally wrong to upset that.
	The noble Lord, Lord MacGregor, raised a challenging point about Railtrack shareholders. I have not seen the documentation to which he referred, but it is regrettable that he has suggested that individuals at the Office of National Statistics succumb to pressure, even if such pressure were ascertained. It is unfortunate that such a contribution was made in those terms.
	In relation to the classification of expenditure, I do not think that the rules about what is on or off the balance sheet have changed in relation to PFI and other expenditure. If the noble Lord can bring to my attention any change that there may have been, I shall apologise, but I do not believe that the rules have changed. Some of the PFI schemes are already on the balance sheets and some are not. It depends on where the analysis and the balance of risk lies.
	It was suggested that the Government have delayed the spending review because they are in financial trouble. It has already been touched on that the position was set out in Budget 2005 and will be reviewed in the Pre-Budget Report. The concept of, 10 years on from the first comprehensive spending review, taking another significant look over the next 10 years seems right. It is right to recognise that the world and global circumstances are changing. It is right to have a zero-based budgeting approach so that we do not just take last year's Budget and add to or subtract from it. We should have something that builds from the bottom up, giving a proper budgeting profile for public expenditure.
	A number of noble Lords have cited the IFS's projections, but again I make the point that the Government's record is better than most.
	On the issue of an independent fiscal committee to look at the statistics, I remind the House that until this Government there was no independent audit of the data that went into the projections of public expenditure. This Government involved the National Audit Office and got it to audit trend growth and other aspects of those projections. Until 1997 that was not the case.
	The Government consider that bio-ethanol and bio-fuels can offer significant cost-effective benefits through reduced emissions of greenhouse gases from road transport. To encourage the development of the market the Government introduced a 20p per litre duty differential in 2002. From 1 January 2005 the Budget confirmed that a 20p per litre differential for both bio-diesel and bio-ethanol will continue until 2007–08. I shall nevertheless raise the matter further with colleagues.
	My good friend the noble Viscount, Lord Trenchard, with whom we perpetually seem to be destined to debate ACT and pension funds, raised the point about 50 consecutive quarters of economic growth, and that that certainly included 18 quarters of the previous Government. Right, but the point is that the previous government had two recessions in 18 years, and at the end of the period of that government there was rising inflation and debt had not been brought under control. Because of the economic stability that this Government have put in place that profile has not turned into deficit or recession. We have continued that growth, which is why we cite the 50 consecutive quarters.
	The noble Viscount referred to tax codes—I think that he was talking about fiscal regimes, not the pay-as-you-earn code. He said that we had done nothing to help savings, but we reduced capital gains tax rates; income tax rates are at their lowest for 70 years; and we reformed the pension fund. He asked whether we wanted big or small government. I said that we want effective government, which is what we have.
	The noble Viscount touched on public sector employment levels. I am pleased that we have more doctors, nurses, consultants, police officers and so on. On the question of whether public services have improved, the electorate cast their view a few weeks ago. As to tax credits, we have discussed and debated the issue in this place. If one targets resources and measures, they are inevitably complicated. We understand why the responsive nature of the tax credit system has given rise to some of the issues before us.
	The issue of employee remuneration would not affect the sort of companies to which the noble Viscount referred. People will not just walk innocently into those arrangements; those who avail themselves of such schemes know what they are doing and must therefore take the consequences of their actions.
	There was a report on ACT refunds from the Pensions Policy Institute, which the noble Viscount may have seen, saying that the claim for £5 billion a year was almost certainly overstated and certainly did not pick up the benefits of the reduced corporation tax.

Viscount Trenchard: My Lords, I thank the Minister for giving way. He refers to the report from the Pensions Policy Institute, which I have read. It is clear that the author has no comprehension of the connection between dividend payments and share price. He says that the Government claimed that ACT relief, when it was available—properly, in my view—encouraged companies to distribute more of their profits as dividends and reinvest less in their own businesses. Will the Minister predict what would happen to share prices if companies paid zero dividends and reinvested all their profits in the business?

Lord McKenzie of Luton: My Lords, there is a balance involved. I hope that the noble Viscount will forgive me; I must make progress. I shall have to reply in writing to some of the points raised. If one looks at what happened in the stock market immediately after the announcement in 1997 about the withdrawal of that tax credit, it increased for about three years.
	The noble Lord, Lord Northbrook, raised a series of questions. I hope that he will forgive me; I do not have time to deal with them all here, but I shall follow up on each of the points that he raised. He and other noble Lords referred to flat taxes, with which I have already dealt.
	On arbitrage, it is not right that it will hit unsuspecting parties. It is about those who try to avoid tax, and it is the sole objective of the arrangements. HMRC has said that it will agree to an informal clearance procedure, which should give the sort of protection required.
	The noble Lord, Lord Sheldon, touched on the golden rule issues and the tax avoidance industry. We live in an increasingly complex world where sophisticated financial instruments are unpicked and unbundled to achieve tax advantages. The noble Lord, Lord Newby, referred again to a flat-rate tax system, and I sure that we shall return to that issue.
	This is not about moving back to the start of the economic cycle arbitrarily, but is on the basis of NAO statistics, which has updated the projections. The Bill is a consequence of that, and the position will be kept under review.
	The noble Baroness, Lady Wilcox, talked about tax simplicity. Again, we are on the flat-rate tax system. The cost of the Adam Smith Institute proposal was £50 billion per year.
	In closing the debate, I thank noble Lords for their insightful and wide-ranging contributions. The Bill will endorse legislation that ensures tax simplification and fairness. It takes the logical and proper approach of reducing tax avoidance, while providing support for key activities such as scientific research organisations. It is imperative to remember that the amount of tax potentially at risk from avoidance schemes runs into hundreds of millions of pounds. The Government's reforms will protect revenue for investment in public services and will ensure that a unfair tax burden does not fall on the vast majority of taxpayers who pay their fair share.

Baroness Noakes: My Lords, before the noble Lord sits down, I have listened carefully to his 28-minute speech. In my opening speech, which seems a long time ago, I asked about an issue raised in Starred Questions on 28 June. I asked specifically about the economic cycle of the golden rule and whether the Government had plans to change the definition or measurement of it. The noble Lord, Lord McKenzie of Luton, said:
	"My Lords, I confirm that the Government have no such plans"—[Official Report, 28/6/05; col. 129.]
	I put it to the Minister that that misled the House at that stage. I did not hear him explain how that arose.

Lord McKenzie of Luton: My Lords, I do not believe that it misled the House. On that occasion we were discussing the basis on which the cycle is computed. If the ONS has updated the data to indicate that, in those earlier years, growth under this Government was higher than originally projected, that will have an impact on the analysis of when the cycle begins. That is what has happened. There is no change in the basis on which that is done; the information has simply been updated. As I said, the 2000 Budget Report showed that to be a provisional assessment that the cycle started in 1999. It has been clear in everything that the Government have said on that; the House has not been misled.
	On Question, Bill read a second time; Committee negatived.
	Then, Standing Order 47 having been dispensed with, Bill read a third time, and passed.

Finance Bill (EAC Report)

Lord Wakeham: I beg to move the Motion standing in my name on the Order Paper.
	Moved, That this House takes note of the report of the Economic Affairs Committee on the Finance Bill 2005 (2nd Report, HL Paper 13).—(Lord Wakeham.)

On Question, Motion agreed to.

Fraud Bill [HL]

Lord Goldsmith: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
	Moved, That the House do now resolve itself into Committee.—(Lord Goldsmith.)

On Question, Motion agreed to.
	House in Committee accordingly.
	[The DEPUTY CHAIRMAN OF COMMITTEES (Viscount Simon) in the Chair.]
	Clause 1 [Fraud]:

Lord Kingsland: moved Amendment No. 1:
	Page 1, line 7, leave out paragraph (b).

Lord Kingsland: Grouped with this amendment is the Question on whether Clause 3 shall stand part of the Bill. The amendments test the purpose of Clause 3 in the scheme of the Bill. Clause 3 seems to add little to it. What, in the view of the noble and learned Lord the Attorney-General, is covered by Clause 3 that is not already covered by Clause 2?
	Only one case comes to mind, the facts of which are as follows. A consultant refers his private patients to a hospital but does not inform the hospital of their private status. The patients receive treatment without paying and the hospital suffers a loss. In this case, it was held that the consultant's silence and the act of sending the patients to the hospital is the representation. So I can see that the way in which the Government have cast Clause 3 might appropriately cover those particular circumstances. But I am very hard-pressed, outside that single example, to see what Clause 3 adds. I beg to move.

Lord Goldsmith: The Law Commission, in the report that noble Lords complimented at Second Reading, set out a number of paragraphs why it thought, and the Government agree, that it is desirable to have a specific offence of non-disclosure.
	The noble Lord is right that there are occasions when something that most of us naturally might think of as a non-disclosure is transformed by a fiction of the law into an implicit misrepresentation. But it is a fiction; it is not how people think about it. People will frequently say, "I was not misled because I understand that he was implicitly making this representation to me. He just did not disclose something; he was dishonest in not disclosing it; and the purpose of that was to make a gain or to do something else". One can think of many other examples where that would be the true basis on which a charge would be laid.
	There are many occasions in the law where there is a duty of disclosure: in contracts of insurance, under certain market customs or certain contractual arrangements. In those circumstances, people may well be under a duty to make a disclosure and fail to make it. That will have consequences in law. The noble Lord may imagine, for example, the ability to set aside contracts on the grounds of non-disclosure and that sort of thing. Furthermore, those may have given rise to an economic loss to the person to whom the disclosure was not made or a benefit to the person who failed to make the disclosure. The Government believe, as did the commission, that it was right, fairly and squarely, to identify that as a form of unlawful conduct.
	I hope that I have given some assistance regarding the understanding behind the clause. As I understood that the noble Lord's amendment was probing in nature, I anticipate that he will withdraw it.

Lord Kingsland: I am most grateful to the noble and learned Lord. I should have made clear at the outset that, like many of the amendments that I have tabled in Committee, this one is probing in nature.
	I find the noble and learned Lord's reply entirely satisfactory and agree with him that the fiction of implicit misrepresentation is probably better dealt with by Clause 3, which brings out into the open, and puts on the face of the Bill, the reality of what the Government are trying to get at. The noble and learned Lord has made that very clear, and that is a perfectly appropriate way to deal with the matter. In those circumstances, I am content to withdraw my amendment and not to bring it back on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 1 agreed to.
	Clause 2 [Fraud by false representation]:

Lord Kingsland: moved Amendment No. 2:
	Page 1, line 19, leave out paragraph (b) and insert—
	"(b) either—
	(i) he intends by making the representation to make a gain for himself or another, or
	(ii) he knows that his making the representation will, in the ordinary course of events, cause loss to another or expose another to a risk of loss."

Lord Kingsland: Amendments Nos. 14 and 16 are also grouped with Amendment No. 2. Clauses 2 to 4 set out the new offence of fraud and the three ways in which the crime may be committed. As Members of the Committee know, the new categories are as follows: fraud by false representation, fraud by failing to disclose information and fraud by abuse of position.
	The drafting of all three clauses is similar in that a person will be in breach of these sections if he intends by making the representation, by failing to disclose information or by abusing his position,
	"(i) to make a gain for himself or another, or
	(ii) to cause loss to another or to expose another to a risk of loss".
	Although sub-paragraph (i) is a straightforward application of the word "intends", sub-paragraph (ii) is more obscure. A fraudster, after all, does not act with the purpose of putting another at risk of loss, although he may be aware that it will be a consequence of his actions. We believe that the formula would benefit from the insertion of a knowledge requirement.
	Generally a fraudster acts with the purpose of making a gain for himself or another, but on occasion this will not be the case. In Wai Yu-Tsang, a Privy Council case in 1992, the defendant covered up irregularities at the bank in which he was employed with the intention of protecting the bank's interests. Nevertheless he was held to be guilty of conspiracy to defraud on the basis that his acts imperilled the economic interests of another.
	The current formulation of the general fraudulent intention is presumably intended to catch such conduct by use of the oblique definition of "intention". At page 71 of the 10th edition of Criminal Law, Smith and Hogan, citing a 1999 appeal case called Woolin, state:
	"A jury may also find that a result is intended, though it is not the active purpose to cause it, when,
	(i) The result is a virtually certain consequence of the act, and
	(ii) The actor knows that it is a virtually certain consequence".
	Our amendments would ensure that the Bill has a similar effect to that formulation, but drafted to be clearly understood on the ordinary meaning of the words, and will continue to mean what Parliament intends it to mean independently of the development of the concept of "intention" in the common law. This formula has been taken from the Law Commission's draft Bill on reforming the law of violence. I beg to move.

Lord Goldsmith: The noble Lord started by indicating that each of the proposed new subsections follows the same formula. He is also right to point out that the common, practical situation in any fraud case is that the intention is for the fraudster to make a gain for himself, or sometimes for another. We are entirely agreed that that has been properly put forward. But there will be other cases, ones that are less usual, in which for example fraudulent representation is made not with the intent to make a gain—or at least a gain of property, because such a gain is the only one that would count for the purposes of the clauses—but in order to cause loss to another. The noble Lord's amendment would redraft that limb of each of the provisions.
	The noble Lord makes a good point in saying that frequently it is open to a jury to infer intention from the fact that the defendant knew that what he was about to do would, in the ordinary course of events, have that consequence. That is a matter of everyday experience and is often how we judge that someone intended a particular consequence. We would conclude that he knew very well that the consequence was what was going to happen and, in the absence of anything else, we can assume and find that he intended to do it. But one is still looking to find the intention, not to establish whether there is knowledge. Knowledge is a way of getting at the intention, but it is not the fundamental issue. The reasons for my problem with the noble Lord's amendments are threefold.
	First, while in many cases there may be little difference in practical effect between his formulation and the way the Bill is drafted for the reasons I have just given, that would not necessarily be so in all of them. I can envisage circumstances in which his formula would both lower the hurdle for a prosecution and, in another respect, raise it. I shall explain that. If the effect of the amendment is that it can be said that the offender's knowledge is such that in the normal course of events his behaviour would lead to loss by another, but that is certainly not what he intended—he may intend something other than that—is it right to make him criminally liable in those circumstances? I suggest that it is better to keep the hurdle at a height which puts the intention as the relevant state of mind.
	Further, it may imply a higher hurdle because of the "ordinary course of events" requirement. Again, I shall explain that. It would mean that the offence would not be made out if, in the ordinary course of events, the false representation will not cause a loss or expose anyone to a risk of loss even though that was absolutely what the offender intended. That may be due to unusual circumstances: he intended the loss, but in the ordinary course of events one would not expect it to take place. Perhaps it does but perhaps it does not.
	That leads me to the second objection, which is really a point of principle. The Bill has been drafted on the basis that it focuses on the conduct of the defendant rather than on the consequences of the defendant's acts. In that respect it is different from the Theft Acts, which depended very much on the consequences of the conduct. The approach of looking at the conduct is that taken by the Law Commission and how the Government look at it. Fundamentally, an individual who dishonestly intends to cause loss, and in this case makes a false representation, is no less morally culpable because he fails to cause loss than the person who intends it and does in fact cause loss. It may affect the sentence, but in terms of whether there is or is not a criminal responsibility, we suggest that there is no difference between them. But. As I have just suggested, the test of the "ordinary course of events" may draw a distinction between the two.
	Thirdly, I can foresee practical problems. The test as proposed by the noble Lord would require the prosecution to prove knowledge that, in the ordinary course of events, loss would be caused to another. That would require at least some attention to be given to what one would expect to happen in the ordinary course of events, although I accept that in some cases that may be precisely how one proves the intention. But it would not necessarily be the way of establishing proof of intention, and if it were clear that the defendant had intended to cause the loss, why should he be any less responsible because the prosecution cannot prove—because it may not be the fact—that, in the ordinary course of events, loss had been intended?
	Let me summarise by saying that the approach taken in the clause as the Law Commission would have it and with which the Government agree, is to focus on conduct and on the intention of the defendant. While I recognise that looking at knowledge may well be a way of proving intention, it is only a way to that end. It is better to leave the test with a statement of the intention of the defendant, as the Government propose.
	I await to see how satisfied the noble Lord is with my response.

Lord Kingsland: I think that my response will be quite terse. While I am most grateful to the noble and learned Lord for his explanation, unlike the line I took in the first amendment, I am not content with the reasons he has given for sticking to his last. If the defendant does not have the knowledge we have described in our amendment, it is hard to see how he ought to be penalised for the consequences of the loss, or the risk of loss, to another person. I go so far as to say that in my view that would be unjust.
	I shall read carefully the response of the noble and learned Lord and reflect on whether to bring it back on Report. I see that the noble and learned Lord wishes to speak.

Lord Goldsmith: I am grateful to the noble Lord for allowing me to intervene. Perhaps I may suggest quite simply that he should also consider that all these offences are conditioned on a further requirement being made: that the defendant has been dishonest. This is a point which I suspect I shall come back to later in the amendments. He has to have been dishonest, for example, when he makes the representation. If someone dishonestly makes a misrepresentation intending that somebody should be caused loss by it, why is that not a proper criminal offence? That is the point I invite him to consider as he studies the answer.

Lord Kingsland: I take that point. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Viscount Simon: Before calling Amendment No. 3, I must advise Members of the Committee that if it is agreed to, I shall be unable to call Amendments Nos. 4 to 7 inclusive due to pre-emption.

Lord Kingsland: moved Amendment No. 3:
	Page 2, line 3, leave out paragraph (b) and insert—
	"(b) the person making it—
	(i) knows that it is untrue or misleading, or
	(ii) knows that it might be untrue or misleading and is reckless as to whether it is untrue or misleading."

Lord Kingsland: The difference between this amendment and the wording of the Bill is essentially the insertion of the word "reckless".
	The definition of false representation in Clause 2 includes a misleading representation provided,
	"the person making it knows that it is, or might be, untrue or misleading".
	We believe that that is too wide. We believe that the clause should be amended to require recklessness, as under the current law.
	For example, advertisers may make representations knowing that they might be misleading. As they clearly act with the intention of making a gain, their only protection from criminal liability is the question of dishonesty. It is too uncertain to leave culpability in these circumstances to the subjective view of the jury.
	It has been suggested that the seller of a Renoir painting would be able to protect himself from a fraud charge only if he had said, "I honestly believe this to be a Renoir", rather than simply, "This is a painting by Renoir". The seller, knowing difficulties in the attribution of paintings in general, knows that his statement might be false, and so would be guilty of the offence if a jury finds him to be dishonest. In such a case, the Government rely upon dishonesty to draw the line.
	By contrast, we believe that an alternative drafting would avoid the need to leave the matter to the subjective view of the jury.
	Under existing law, deception means any deception, whether deliberate or reckless, by words or conduct as to fact or as to law, including a deception as to the present intentions of the person using the deception or any other person. In a case called Staines (60 Criminal Appeal Reports 160) "recklessness", in this context, was interpreted as,
	"an indifference to or disregard of the feature of whether a statement be true or false".
	This definition has presented no problems.
	(1 Appeal Cases 1034). So to make that clear, we think that both recklessness and knowledge should be included in the clause. An advertiser or an auction house who has taken adequate steps to check his representation before making it could not be said to be reckless, and so would not be prima facie guilty of the offence. I beg to move.

Lord Lyell of Markyate: I rise briefly to support what my noble friend Lord Kingsland has said. Recklessness is a very good test when criminality is in issue. Recklessness is well understood by the courts. It means not only what my noble friend has quoted from cases, but also, in a sense, a deliberate closing of the eyes to something that is important. It is a much safer basis on which to convict somebody for fraud than the fact that the person making the representation knew that what he was saying might be misleading, which is a fairly light test. When one is dealing with the criminal law, it is much better to have a clear test. I ask the noble and learned Lord the Attorney-General to think carefully about this amendment.

Lord Thomas of Gresford: I am grateful to see the absence of the word "reckless" in the Bill. In my view, it has caused a great deal of difficulty in the criminal law. It can mean not only what was explained a moment ago, but also a failure to give the mind to something to which one ought to give the mind. That is a very difficult concept for a jury to get hold of. I think that it is far better to leave the word "reckless" out of the Bill.

Lord Goldsmith: I entirely agree with the noble Lord, Lord Thomas of Gresford, on this. However, I wish to start by saying that it is a great pleasure to have for the first time the opportunity to debate in this Chamber with the noble and learned Lord, Lord Lyell.
	The Law Commission rejected the concept of recklessness for two reasons. One was that, at that stage, the law was remarkably unclear about what recklessness meant. Noble Lords who have followed the way that the concept of recklessness has been defined, redefined, clarified and muddied over the years will understand the problem that the Law Commission saw. It is right to say that since that date, the decision of the House of Lords in R v G, to which the noble Lord, Lord Kingsland, referred, stated what the test ought to be. But it is a test in the context of criminal damage. I notice that when the noble Lord, Lord Kingsland, drew his definition, he was referring to a similar area which was to do with a different form of violent conduct.
	Recklessness is a problem. If one takes the definition from the Criminal Damage Act, one quickly needs to ask whether it is unreasonable for the defendant to take the risk if he is aware that what he is saying or doing may have a certain consequence. That is an added complication, and is my slight refinement on what the noble Lord, Lord Thomas, said about the problem of introducing recklessness.
	I do not see the merit of introducing recklessness into the Bill. I come back to the concept of dishonesty. I do not see the difficulty in the art dealer example given by the noble Lord. If an art dealer said, "This is a painting by Renoir", knowing that that statement can have a huge impact on the value of the painting—but not knowing whether it is true and thinking that it might be untrue—it would be for a jury to decide whether he was dishonest. If he was dishonest, I see no difficulty in saying that he is guilty of fraud in those circumstances.
	The alternative is to ask the jury to start by looking at whether the dealer is taking an unreasonable risk that the statement is untrue. The simpler approach which the Government have put forward is to say that if someone dishonestly makes a representation knowing that it is untrue, or that it might be untrue—and I emphasise "dishonestly"—and the fact-finding tribunal decides that he was dishonest, he should be guilty of an offence. I therefore invite the noble Lord to withdraw the amendment.

Lord Thomas of Gresford: I recall a leading case on recklessness in criminal damage. It was the Metropolitan Police Commissioner against somebody—after lengthy travelling today, I cannot remember the name of the case. But I remember my son, studying at Cambridge some years later, asking what on earth academics discussed before that case when it came to recklessness, because all his lectures were devoted to it.

Lord Goldsmith: Trading anecdote for anecdote, I recall circuit judges asking how to direct a jury along those lines. It is very difficult to ask them to reach such decisions.

Lord Kingsland: I am most grateful to the noble and learned Lord for his response. I am delighted at the support I have received from one of his predecessors, my noble and learned friend Lord Lyell. If I bring the amendment back on Report, I cannot count on a great deal of assistance from the Liberal Benches, which I suppose ought to be a deterrent to taking the matter further.
	But just supposing that the noble and learned Lord and the noble Lord, Lord Thomas of Gresford, are right about recklessness. I am still of the view that the clause is cast too widely. I simply think the word "might" is an over-flexible expression in an offence of this type. Effectively, it will be determined by the subjective view of the jury about dishonesty, with almost no statutory guidance. That is unsatisfactory when you are trying to define a new test for fraud.
	I invite the Minister, between now and Report, to think, if he would be kind enough to do so—

Lord Clinton-Davis: Before the noble Lord sits down, is the House to infer that he will not pursue the inclusion of the word "reckless"?

Lord Kingsland: I am saying that if the noble and learned Lord does not like the word "reckless", what other formulation would he insert in the Bill to limit the scope of the offence? I am not saying that I shall not pursue the inclusion of "reckless" on Report; but if the noble and learned Lord comes up with a new formulation on Report which constrains the current formulation, I would be happy to yield over the question of "reckless". The noble Lord shakes his head; perhaps he would like to intervene again and pursue me.

Lord Clinton-Davis: I think it is a waste of time as I believe the amendment is also a waste of time.

Lord Kingsland: Does the noble Lord think it is a waste of time only because I shall get no support from the Liberal Benches?

Lord Lloyd of Berwick: The noble Lord is not getting much support from the Cross Benches either.

Lord Kingsland: I think I have made my point. The noble and learned Lord understands the mischief I am getting at. If he can think up an alternative formula, I would be most grateful. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Kingsland: moved Amendment No. 4:
	Page 2, line 3, after "person" insert "at the time of"

Lord Kingsland: Amendment No. 4 is grouped with Amendments Nos. 7 and 8. These are probing amendments to further tease out some of the details of Clause 2.
	I shall start with Amendment No. 8, which would require facts taken as a representation to be material. We feel that it is unclear exactly what is meant by the words "by making the representation" in Clause 2(3). For instance, in the course of negotiations between a buyer and a seller, each will make various representations to the other. Does every representation made in the course of such negotiations, considered individually, satisfy the requirement of Clause 2(3)? Or would that apply only to representations that are material?
	On the current drafting of the Bill, if, on a mortgage application, a person makes a false statement of fact, knowing it to be false, or knowing that it might be false, and with the intention of getting the application accepted, and gain for himself, he would be guilty of the offence. This is so, however irrelevant the representation is, in fact, to the bank. Requiring that the fact be a material one in the eyes of the jury would ensure that such irrelevant representations are not caught by the clause.
	Amendments Nos. 4 and 7 address the issue of when the representation is taken to have been false. We feel that for clarity it should be made clear that the defendant's state of mind is to be determined at the time of the representation. That is necessarily implied in the current law. I beg to move.

Lord Goldsmith: I have to resist this amendment as well. I remind the Committee of the beauty of the simplicity of the new offence as drafted. If we take fraud by false representation, it is simply a requirement that a person makes a false representation, does so dishonestly and intends, by making that representation, to make a gain for himself.
	What does the noble Lord mean by introducing the concept of "material"? This is a representation which is made dishonestly with the intention of having this consequence. So, is it material to be judged in the defendant's mind? He obviously thinks the representation is material in the sense that thereby he intends to make a gain and maybe other misrepresentations as well. If he does so, why should some objective test of materiality judged by a jury have anything at all to do with the nature of his conduct and the criminality of what he is doing?
	If the person is unaware that the representation is false and believes it to be true, he will not be guilty of the offence. But if he makes the representation dishonestly and intends to make a gain, why should it matter that by someone else's standards this is or is not material? I say that in relation to the first amendment to which the noble Lord spoke.
	Amendments Nos. 4 and 7 deal with the time at which the representations are to be true. I agree with the noble Lord that it is implicit in the drafting of Clause 2 that the only time at which one can make a judgment about whether the defendant thinks his representation is, or might be, untrue, is when he makes the representation. So if he believes it to be true at the time he makes it, he cannot have been dishonest. There seems to be no point in including the additional words. As I said on Amendment No. 8, there is no benefit in introducing an unnecessary requirement to prove materiality in someone's eyes; indeed, it will create an additional burden for the prosecution to meet.
	On the basis of those two disparate although connected points, I invite the noble Lord to withdraw the amendment.

Lord Thomas of Gresford: Questions about the timing of the representation and the materiality are all wrapped up in the word "dishonesty". Dishonesty is the concept; the words it is suggested should be inserted are otiose.

Lord Lyell of Markyate: I follow the noble Lord, Lord Thomas, and the noble and learned Lord the Attorney-General, who have constantly referred back to the word "dishonestly". When the Attorney-General and the Committee reflect on this issue, they may consider that the beautiful simplicity is rather reduced by subsections (2) and (3). In reality, one does not need to go any further than to say that a representation is false if it is untrue or misleading. All the other details in the remainder of the subsections go to the question of dishonesty. It would be more beautiful and more simple if it stopped there. That is a broad consideration for the more detailed amendments that my noble friend is putting forward.

Lord Clinton-Davis: I am sorry that the noble and learned Lord the former Attorney-General should advance that argument. As a mere solicitor—or former solicitor—I believe that the qualifying words of paragraph (b) are essential. I can see nothing wrong with what is being proposed.

Lord Lloyd of Berwick: I entirely agree with the observations that have been made. As I understand it, the whole basis of the new Bill is dishonesty. That in itself is a sufficient basis.

Lord Lyell of Markyate: I entirely agree with what the noble and learned Lord, Lord Lloyd, has said, except that it argues the other way. The difficulty is that when you start to put in further words which qualify dishonesty, or which give the impression that if you knew something might be misleading it would then lead back to your state of mind and the question of whether you were acting dishonestly, you are, in a sense, putting an unnecessary danger for a defendant.

Lord Goldsmith: With respect, again, it is an everyday experience that someone will say something which is either misleading or which he knows might be misleading, in the hope that it will get him what he wants—goods at a cheap price or whatever it may be. In fact the person who hears him might interpret the cleverly and carefully expressed words in a way which means that they are not misleading and he might or might not sell him the goods at the lower price. But if a person dishonestly says something which he knows is or might be misleading, I regard that as fraud and it is right that the Bill should say so. I am very grateful for the support from the Cross-Benches and from my noble friend Lord Clinton-Davis.

Lord Kingsland: On this occasion I have had no support at all for my amendments—which is one worse than during the previous debate—and so I shall not press them. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendment No. 5 not moved.]

Lord Kingsland: moved Amendment No. 6:
	Page 2, line 3, leave out "might" and insert "intends it to"

Lord Kingsland: It is unclear in what circumstances it could be said that a defendant knows that a representation "might" be untrue or misleading. In many cases, it is impossible for any person to know anything with complete certainty.
	To return to the previous example, a person selling a painting may genuinely believe that the painting is an original Renoir. There may be every reason to believe that the painting is by Renoir—for instance, the painting may have been continuously owned by a family who originally purchased it from Renoir, and an expert may have examined it and confirmed it to be a Renoir. However, no matter how strong the reasons for concluding that the painting is genuine, ordinary human experience tells us that in a situation such as this there is always some possibility, however remote, that the painting is not genuine.
	On the present wording of Clause 2, it would seem that the seller of the painting would make a false representation within the meaning of Clause 2 if he said, "This is a painting by Renoir" rather than saying, "I honestly believe that this is a painting by Renoir".
	The amendment would change the drafting to read:
	"A representation is false if—
	(a) it is untrue or misleading, and
	(b) the person making it knows that it is, or intends it to be, untrue or misleading".
	The Criminal Law Solicitors' Association raised this issue in response to the Government's consultation. It stated:
	"The Criminal Law Solicitors' Association is opposed to the additional wording of 'which he is aware might be false or misleading'. We believe that the addition of the words 'might' present too nebulous a concept for inclusion within the criminal law particularly where the burden of proof is to establish a Defendant's guilt 'beyond reasonable doubt'. We would submit the inclusion of such a nebulous test would in our view be falling into the trap of making matters too confusing for a jury".
	I beg to move.

Lord Goodhart: I do not know quite how the noble Lord, Lord Kingsland, would regard what is—or, at any rate, used to be—the practice of the auction houses. If they stated in their catalogues that a picture was by Renoir it meant that it might be by Renoir; if they said it was by Auguste Renoir it meant that it really was by Renoir.

Lord Goldsmith: The point is that if they use a description which is understood by people to mean "It might be; provenance uncertain", then they will not have been dishonest in making that statement. If, on the other hand, the provenance is uncertain and they use the expression "Auguste Renoir" knowing that people would take that to mean it was in fact by Renoir, that is fraud if they are dishonest.
	We come back time and again to the same point. I have two answers for the noble Lord. If what is said might be untrue there are two constraining elements—two safeguards for a defendant. These are, first, that his conduct must be dishonest; and, secondly, that by making the representation he must intend to make a gain or cause a loss to another. Those two requirements have to be there.
	My second objection is that the amendment as drafted does not meet the point in any event. In the example we have been talking about, which some noble Lords might have preferred to see in terms of recklessness, it is not that the person intends the representation to be false—he rather hopes that it is true—but that he has not got a basis on which he can properly put the painting forward and say, "This is a painting by Renoir. Please give me £10,000 for it", or whatever it may be. For those two reasons, I cannot accept the amendment.

Lord Kingsland: Once again, I am most grateful to the noble and learned Lord for his reply. However, I do not on this occasion think it meets my argument at all.
	Time and again in his replies to me today the noble and learned Lord has fallen back and placed great weight on the jury's analysis of dishonesty. Throughout the Law Commission report there is a very powerful theme which emphasises how dangerous it is to put too much weight on dishonesty alone in this line of offences.
	In a sense, I am rather encouraged that the noble and learned Lord is putting so much weight on the jury when he appears to be about to remove it from fraud trials. He thinks that dishonesty is a safeguard; but it looks as if, in future, it is not going to be the jury that determines dishonesty, but the judge on his own. This has huge implications for the role of dishonesty in fraud trials. So we need a stronger guarantee in the Bill to protect people in these circumstances. For those reasons, I shall certainly bring this amendment back on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendments Nos. 7 and 8 not moved.]
	Clause 2 agreed to.
	Clause 3 [Fraud by failing to disclose information]:

Lord Kingsland: moved Amendment No. 9:
	Page 2, line 10, leave out "dishonestly"

Lord Kingsland: These amendments relate to fraud by failing to disclose information. They, too, are probing amendments to tease out the Government's thinking in the drafting of this clause and their reaction to the responses received from their consultation.
	The current drafting states:
	"A person is in breach of this section if he . . . dishonestly fails to disclose to another person information which he is under a legal duty to disclose".
	Our amendments would leave out the word "dishonestly" and insert "wrongfully". As the Government are no doubt aware, one of the questions they posed in their consultation on this Bill was,
	"should it be fraud to wrongfully and dishonestly fail to disclose information?"
	Why have the Government settled on this wording rather than any other? I beg to move.

Lord Goldsmith: I attempted to explain this at Second Reading. Clause 3 makes it an offence to fail to disclose information where there is a legal duty to do so. It also makes clear that the offence of failing to disclose information must be done dishonestly. Both the amendments appear to create the possibility that a person could be prosecuted for behaviour that would not be described as dishonest.
	Perhaps I may interpolate one word on the noble Lord's observation about the emphasis being placed on dishonesty. I am placing emphasis on dishonesty, as the Government do and as the Law Commission also did, and applying the test which arose from the case of Ghosh. The noble and learned Lord, Lord Lloyd of Berwick, referred to it at Second Reading, and it is supported strongly and applied throughout the courts in the country. We are entirely content that that test is workable in practice and can be determined by juries and other fact-finders. When the noble Lord studies Hansard, he will find that I have used both "juries" and "fact-finders" when I have been talking about this. The noble Lord is of course right that it is our stated intention that, in a very limited category of case, the Government propose to implement Section 43 of the Criminal Justice Act 2003. That is for debate on a later amendment, which I do not suspect we will reach today. While I admire the noble Lord for picking up my words in the way that he did, I am afraid that he will get no comfort from that.
	I turn to Amendment No. 9. The Government agreed with the Law Commission that dishonesty should be an underlying requirement for all three limbs of the general offence of fraud. The commission, after very careful consideration, concluded in paragraph 7.9 of its report that,
	"we are persuaded . . . that the element of dishonesty should be essential to (though not sufficient for) criminal liability for fraud".
	That conclusion was widely supported by stakeholders in response to the Government's consultation paper. It is an underlying safeguard for the innocent, and we do not see any justification for changing it now, for any limb of the general offence.
	As I have said, there is a shared understanding of what "dishonesty" means, thanks to the case of Ghosh. I remind noble Lords that the Ghosh test requires some subjective awareness by the offender that what he did was not in accord with the standards of ordinary people. This is an essential test for criminal liability for fraud. To remove the requirement for dishonesty would result in a criminal offence that is too widely drawn.
	The same would apply, if perhaps to a lesser extent, if we were to accept Amendment No. 10 and introduce the possibility of prosecutions for actions that were carried out not dishonestly but merely "wrongfully". We have no common understanding of what is meant by the term "wrongfully". We have a common understanding of what is meant by "dishonestly" because the case of Ghosh and our common experience tells us what it is.
	The Law Commission used the term "wrongfully" in its draft Bill, but that was because, at that stage, it wanted to find a drafting device, a label, to cover two different sets of circumstances which it believed ought to be covered in this clause. If I may paraphrase, those were a legal duty and a moral duty. We will come to those in later amendments. We did not agree, following the consultation, with part of its definition; that is, where there is no legal duty to disclose the information. Once we had made that policy decision not to include the non-legal duty, there was no point in retaining the label which the commission had come up with to describe the two sets of circumstances, so "wrongful" disappeared.
	In short, we agreed with the commission that dishonesty ought to be not a sufficient but an essential part of the offence. Therefore, we would resist any amendment, such as Amendment No. 9 or even Amendment No. 10, which would remove that from this offence.

Lord Kingsland: I am grateful to the noble and learned Lord. As I said, these were probing amendments. I entirely accept that leaving out "dishonestly" would inappropriate. However, as I understand it, the consultation posed the question: should it be fraud wrongfully and dishonestly to fail to disclose information? I asked the noble and learned Lord to explain why the Government have settled on this wording rather than any other. He has explained that entirely to my satisfaction, so I am happy to withdraw the amendment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendment No. 10 not moved.]

Lord Kingsland: moved Amendment No. 11:
	Page 2, line 11, leave out "legal"

Lord Kingsland: Amendments Nos. 11 and 12 relate to the commission of fraud by wrongfully failing to disclose information, which is dealt with in Clause 3 of the Bill. Clause 3 makes it an offence for a person dishonestly to fail to disclose information to another person in certain circumstances. Our amendments simply probe what is meant by "legal duty".
	Amendment No. 11 would simply leave out "legal", thus opening up the clause to include other duties such as a moral duty. This was a much ventilated issue, I believe, during the consultation.
	Amendment No. 12 adopts the original Law Commission approach and would provide a tighter, more structured definition of what the Bill means by the word "duty", which we hope may be of some assistance. The absence of a definition of legal duty will in our view give rise to too much uncertainty. I beg to move.

Lord Goldsmith: The noble Lord correctly indicates what the effect of Amendment No. 11 would be; it would broaden the offence—I would say considerably—by extending it to a situation in which a person dishonestly fails to disclose information in circumstances where he is under no legal duty of any kind to do so. As the noble Lord rightly said, and as I noted in dealing with the previous amendment, the Law Commission recommended that in certain circumstances the offence would be committed even in the absence of a legal duty to disclose—but that was the part of the report that the Government did not find persuasive.
	Let me give an example. The Law Commission cited the example of an antiques dealer who calls on vulnerable people and buys their heirlooms at unrealistically low prices. That is in paragraph 7.24 of the Law Commission report. The commission saw no reason why that person should not be guilty of fraud, but it went on to say that it would "clearly be wrong" to impose liability for fraud on a private individual who sees a valuable antique in a car boot sale and pays a low price for it. That is in paragraph 7.26. In the practical circumstances of real cases, it would be very difficult to make such distinctions. Does the vulnerability of the victim make a difference? A vulnerable person might be selling heirlooms at a car boot sale, but does the expertise of the purchaser really make all the difference? A person who is not an antiques dealer may none the less have considerable expertise in the field.
	It is perhaps not surprising, against that background, that the responses to the consultation last year, while giving a general welcome to the Law Commission's scheme, showed considerable opposition to that particular aspect of the scheme. I cite if I may—I hope correctly recollecting it from the Law Commission's report—that the commission also posed the example of the antiques dealer or art dealer not disclosing that the intended probable resale price for an item was £10,000 and that it would mean a very large profit for the dealer. I wonder whether the same would apply if the intended expected resale price was £4,000. These are difficult matters of degree.
	If I may, I shall read the Government's response, which summarised the points of opposition to this particular aspect of the scheme in these terms:
	"One of the main arguments was that this would intrude on the 'caveat emptor' principle, and create a conflict between civil and criminal law, in that it would become criminal not to provide information which you are entitled to withhold under civil law. The other main objection was the lack of certainty: while the requirement of 'dishonesty', which underlies all 3 limbs of the new fraud offence, provides a measure of protection, it will be necessary to make a judgment in each cases as to whether the 'victim' is trusting the defendant to disclose the information. The example of a person selling a car who does not reveal that he has successfully camouflaged some damage to the bodywork with filler is one example presented to us of a situation where it is arguable that the purchaser trusts a disclosure to be made, but consensus is lacking and it will be hard to say where the line should be drawn. It was pointed out that this is a problem not only for juries but for police in deciding what to investigate. It was argued that the conduct covered by"—
	what was then—
	"Clause 3(4) may be dishonest and morally reprehensible, but that does not mean it should be criminal".
	Amendment No. 11 would go beyond what the commission recommended and would give rise to considerable difficulties. The commission limited the moral duty and it is not clear what kind of duty is intended by the amendment once the word "legal" is removed that is not a legal duty. There remains the objection that the extension of the offence to include situations in which a person is under no legal obligation to provide the information would conflict or intrude on the "caveat emptor" principle. The Government believe that it would be undesirable to create this disparity between the criminal and the civil law; it should not be criminal to withhold information which you are entitled to withhold under civil law.
	Having accepted the widespread concerns over extending the criminal law into areas where something may be morally dubious but not clearly seen as criminal, the Government clarified the conditions under which a person would be obliged to disclose the information in question. Although the expression "legal duty" is not commonly used in statutory law, it clearly distinguishes the kinds of duty which should be considered, so that the offence does not encroach on civil or moral duties. I suggest that there will be no difficulty in distinguishing a legal duty from what is not a legal duty.
	The effect of Amendment No. 12 would be in the opposite direction—to narrow, rather to widen, the ambit of the clause. Amendment No. 12 reverts back to the words used by the Law Commission in Clause 3 of its draft Bill. During the drafting of Clause 3 it was found that although it is generally as broad as the word "legal", it was not clear that the words,
	"duty under any enactment, instrument or rule of law"—
	in the words of the amendment—would cover all forms of legal duty, such as duties arising under the express terms of an oral contract. Under which of the words would that fall? Under an oral contact, something would not be caught that was not an instrument or enactment or a rule of law. Oral contracts remain very common and give rise to duties.
	We invite the noble Lord to consider that it is better to leave the matter as drafted, with a clear statement that what is necessary is that there is a legal duty, without seeking to define, qualify, limit or cut that down any further. I hope that having considered that, the noble Lord will withdraw the amendment.

Lord Thomas of Gresford: I support the wording of the Bill on the basis of clarity and certainty. It would be possible for a judge to explain to a jury what legal duty the defendant is alleged to have been under. I believe that it would be very difficult to explain to a jury what moral duty the defendant would be under. It is such a broad expression, which depends on all sorts of concepts, that it would not be within the compass of the judge's direction to explain what the moral duty was. For that reason I support the wording of the Bill.

Lord Goodhart: Amendment No. 11 to some extent overlaps with Amendment No. 13, which was in our name and is in the next group. However, there are significant distinctions between the two, so it is not my intention to speak to Amendment No. 13 with this group.

Lord Lyell of Markyate: The noble and learned Lord the Attorney-General was quite right to give a detailed answer to my noble friend Lord Kingsland when seeking to tease out what might or might not be meant by "legal duty". I confess that I am still not entirely clear on that—and I do not share the confidence of the noble Lord, Lord Thomas of Gresford, that a judge will necessarily find that very easy.
	Will the noble and learned Lord the Attorney-General make it clear whether a legal duty includes a contractual duty? When someone is buying or selling a house and has been asked to answer searches or answer to certain degrees about the condition of the house, that person may suspect that the state of the house is in some way not very good and may keep quiet about it. Is that person committing a criminal offence? Some clarification that we can study before Report, which throws greater light on what legal duty means or does not mean, would be very helpful.

Lord Clinton-Davis: As I understand the position, it is qualified by the word "dishonesty". The example that has been cited is to be adjudged by the word dishonesty, which has been woefully missing from the noble and learned Lord's contribution.

Lord Lyell of Markyate: I hope that I may proceed to answer the noble Lord briefly or to make a comment about the matter. The difficulty is that if you have a concept of a legal duty, for example, that you should indicate that you suspect there is some dry rot under the stairs, and you have not done so, that may very well bear on the decision whether you are or are not thought to have been dishonest. So the two concepts bounce within each other, which is one of the reasons why I understood the noble and learned Lord the Attorney-General rightly to remind us that dishonesty by itself, first, is not sufficient and, secondly, can be confusing. I am trying to tease out the question of legal duty. I much look forward to hearing what the noble and learned Lord the Attorney-General says.

Lord Goldsmith: I am grateful to my noble friend Lord Clinton-Davis who makes a good point. However, it is not the only point. I say in answer to the noble and learned Lord, Lord Lyell, that it will be a question of fact in each case whether or not there was a legal duty to disclose. Undoubtedly in my view that legal duty could derive from a contract, which is not the same as saying whether it is enough that it arises in the context of a contract. So the question will be in each case, is there a legal duty to disclose? That could be a legal duty arising under a rule of law, a statute, an enactment, or it could arise out of a relationship, for example, a fiduciary relationship, but it could arise out of a contract as well. Indeed, that is why I gave the example of an oral contract that might require matters to be disclosed and, if they are not, then at least that is one of the conditions for the offence which is made out.

Lord Kingsland: Once again I am most grateful to the noble and learned Lord the Attorney-General for his response. As he quite rightly said, the two amendments go in opposite directions. Amendment No. 11, by seeking to leave out "legal", greatly broadens the offence. Amendment No. 12, by defining "legal duty", in some small degree narrows it. The reason for this is that the amendments sought to extract an explanation from the Government about the basis upon which they cast their own text.
	I respectfully agree with the Government on retaining the expression "legal". It seems to me that to go beyond that would, as the noble and learned Lord the Attorney-General said, make the law too uncertain. I entirely endorse the approach that the noble and learned Lord has taken.
	I also accept that,
	"duty under any enactment, instrument or rule of law",
	does not include an oral contract. Therefore, to that extent my definition and, indeed, the definition of the Law Commission, is deficient. In those circumstances what is an important category of legal duties, which might well prove the basis of a number of prosecutions, would be excluded, and that would be undesirable. I am most grateful for those explanations and in that case I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendment No. 12 not moved.]

Lord Goodhart: moved Amendment No. 13:
	Page 2, line 11, leave out "and" and insert "or
	( ) dishonestly takes advantage of another person (P) by failing to disclose to P information of a kind which he knows P trusts him to disclose and, in either case"

Lord Goodhart: I rise to give the noble Lord, Lord Kingsland, a break.
	I would describe this as a semi-probing amendment. The amendment would restore to the Bill a provision, in similar but not identical wording, which was in the Bill as drafted by the Law Commission. The effect of the amendment would be to impose criminal liability on someone who has abused the trust of the victim and profited as a result.
	I repeat the scenario that I mentioned at Second Reading. The owner of a picture wants to sell it and says to a friend who has some expertise in art, "I know that you like this picture and I know that I can trust you. Will you make me an offer for it?". That is a situation entirely different from a car boot sale because no one in their senses, whether the buyer or the seller, would trust the other party at a car boot sale. The friend in this case realises that the picture is a very valuable one, not perhaps a Renoir but a picture by some Victorian artist whose pictures now fetch a very high price, and knows that the owner does not realise its real value. So the friend makes an offer far below the real value which the owner accepts. That is plainly not within the wording of Clause 3 but would be within the wording of our amendment and of the Law Commission's version of the Bill.
	That scenario opens up a number of questions. The purpose of this amendment is to get a fuller answer to those questions than was given at Second Reading. The first question is, why did the Government alter Clause 3 from the Law Commission's version? It is clear from the Law Commission's report at chapter 7, paragraphs 31 to 34, that the Law Commission thought that this form of misconduct by the friend ought to be criminal. During his speech at Second Reading the noble and learned Lord the Attorney-General said that the Government were persuaded in the course of the consultation that the offence should be restricted to breach of legal duty. The main objection, as it appears from the Government's response to the consultation, was that it undermined the principle of caveat emptor. That is perhaps not a principle which is particularly attractive but I recognise that as a matter of general law it cannot be removed.
	However, the Law Commission's proposals applied only to cases where there was a relationship of trust between buyer and seller. Where there is such a relationship, the abuse of that trust seems to me to be not just morally dubious, as the Government say in paragraph 25 of their response to the consultation, but morally wrong. It is certainly dishonest and I believe it is strongly arguable that it should be a crime. The other complaint made in response to the consultation was uncertainty. I would have thought that there may be some uncertainty at first but that the courts would be fairly soon able to establish guidelines.
	It is, of course, true that there are different lines of argument here. It may be said that an amendment to Clause 3 is not necessary at all because dishonest conduct of the kind carried out by the friend would be caught under other provisions. For example, could the conduct of the friend be a false representation caught under Clause 2 because of an implication to be implied from the surrounding circumstances that any offer will be a fair offer, so that an offer made by the friend at a gross under-value is a false representation that the offer represents fair value? Or could the conduct of the friend be caught by Clause 4 as being an abuse of position? The friend could be said to be in a position of trust and to be abusing that position. Or does the word "position" refer to something more like a post of employment or an agency or something similar to that? I believe that the Law Commission report certainly suggests the latter meaning, but that was in the context of a Clause 3 which was in a different form. The word "position" is ambiguous and is not defined.
	I feel that in what I have said I have set something which is in the nature of questions for a law examination. I am sure that the noble and learned Lord the Attorney-General would pass that examination with high marks, but it is an important set of questions. I await the answer with interest. I beg to move.

Lord Goldsmith: This amendment, too, touches on the topic that we debated in the previous amendment and I shall not repeat all that I said. This amendment would also widen the offence to include information which there was no legal duty to disclose. It would criminalise behaviour that the Government, at the moment, do not believe should be criminalised.
	It is correct that the amendment goes back to the Law Commission's original recommendation, but I have explained why the Government thought it right, contrary to the view of the commission, to draw the line at legal duties. I have identified the two particular points. First, the noble Lord rightly recognises that caveat emptor is a part of the law of the land that underlies many transactions that take place. Many of us might take the view that, occasionally, that principle is abused in a moral sense—that people keep back information that one might well have expected them to disclose. The way that the law deals with those circumstances is to put a premium on asking specific questions to which you insist on getting a specific answer, so that people cannot hide behind non-disclosure. They may still say, "Well, take it or leave it. I am not going to answer that question"—thus, caveat emptor.
	The second reason is the question of uncertainty, to which the noble Lord referred. He rightly stated that this is an important area, but it is difficult for that reason. What is the type of information which one could be sure would be of the kind that another person trusted you to disclose? The judgments that would be required under the amendment would seem to me to be too fine and too uncertain to determine criminal liability.
	We keep returning to the example of the antique dealer who purposely undervalued precious heirlooms belonging to the vulnerable—and I can well understand that many would instinctively wish that to be covered. I suspect that that might be due to the victim's vulnerability. But that hard case should not lead us to make bad law. As things stand, that case would be covered if, but only if, the antique dealer was employed in a manner that enabled one to say that he was occupying a position for the purposes of Clause 4.
	The noble Lord asked what that meant. The Law Commission, in paragraph 7.38 identified the types of positions that it had in mind—trustee and beneficiary, director and company, professional person and client, agent and principal, employee and employer or between partners. The commission went on to say that the situation might arise in other circumstances: within a family—one can understand that—or in the context of voluntary work or in other cases where the parties were not at arm's length. But in nearly all of those cases, the civil law would already recognise the existence of fiduciary duties, which would often, but not always, carry obligations of disclosure.
	So, the best that I can do to answer the exam question set me by the noble Lord, is to say that that is our understanding of what is meant by "abuse of position" for the purposes of Clause 4—something within the scope of the type of examples that I have given. While recognising that there may be difficult cases, we believe that it is right to draw the line at legal duty, unless the case comes under another clause in the Bill. That is in line with the results of our consultations and, therefore, we believe that it is right to limit Clause 3 in the way that we have done.
	I hope that that has been of some help to the noble Lord. As always, if the noble Lord or other noble Lords require further elaboration, I shall do my best to do so after this debate.

Lord Goodhart: I am grateful to the noble and learned Lord for his full answer to my questions. I understand the reasons why the Government decided not to accept the Law Commission's version of Clause 3 and, while I give no undertaking on this matter, it is unlikely that we shall bring this amendment back at a later stage.
	I should say that in Clause 4, the word "position" is very flexible and we may end up with the clause being used in a way that may to some extent achieve what the Law Commission originally intended by its version of Clause 3. However, that is a matter that, no doubt, will be argued in the courts. The clause seems to be drafted in a way that goes somewhat wider than what would technically be a relationship of trustee and beneficiary, or agent, or any relationship which is specifically recognised by the law. However, having said that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendment No. 14 not moved.]
	Clause 3 agreed to.
	Clause 4 [Fraud by abuse of position]:

Lord Kingsland: moved Amendment No. 15:
	Page 2, line 19, after "dishonestly" insert "and secretly"

Lord Kingsland: The noble Lord, Lord Goodhart, described the last amendment as "semi-probing". In my military days, my commanding officer was the late, lamented, Lord Vivian. I well remember him hovering over a luckless tank troop leader and asking him whether he was in a tactical or a non-tactical situation. The poor man replied, "Well, I'm semi-tactical, sir". I shall not tell you what Lord Vivian's response was.
	This is not a "semi-probing" amendment, but a proper, full-blown amendment that has some outside support, I might say. We believe that secrecy should be a requirement of fraud by abuse of position. If the victim knows what is happening, the defendant's conduct cannot be considered as fraudulent. The consultation paper proposed that there should be one exception to the requirement of secrecy in cases where the defendant believes that the victim is unaware of the abuse, but is wrong in that belief. The Law Commission report stated at paragraph 7.42 that this exception would, for instance, apply in cases where the defendant was under police surveillance.
	However, the exception is worded far more broadly than that. For instance, suppose a defendant employee uses a company telephone for private purposes. The employer knows and is agreeable to that, given that company policy allows employees to use telephones for private purposes. However, the employee does not know that the employer knows and does not know that employees are permitted to use the telephones for private purposes. On the current wording of Clause 4, that would probably amount to fraud, although we can see no reason why that should be the case.
	That view is shared by Liberty. The Criminal Law Solicitors' Association also stated that,
	"secrecy is an essential element of this offence".
	Indeed, the CPS said:
	"In the absence of an element of secrecy, it is accepted that the new offence would probably be too wide".
	I beg to move.

Lord Goldsmith: Clause 4 makes it an offence dishonestly to abuse one's position to commit fraud. The noble Lord's amendment seeks to restore the Law Commission's proposal that for an abuse of position to qualify as fraud it needs to be not only dishonest but also secret.
	We accept that crimes of fraud committed through abuse of position will normally involve an element of secrecy, but we do not believe that it is necessary or desirable to make that a necessary ingredient of the offence. As the noble Lord indicated, it was the subject matter of the consultation last year. I hope that Members of the Committee will find it helpful if I set out the Government's reasons for departing from the recommendations. Paragraph 28 of their response states that:
	"some were concerned that, while secrecy would almost invariably be part of the offending behaviour in practice, it was difficult to define and represented an unnecessary complication, which could lead to technical arguments in court. There could be arguments about whether there had been an intention to disclose in the future, and about whether the employer knew what was going on, if a surveillance operation was in place. It was argued that the mischief lay in the dishonest abuse and that the value-laden concepts of 'dishonesty' and 'abuse' were sufficient in themselves to set the parameters for the offence".
	I accept that secrecy is part of the modus operandi of fraudsters and many other criminals, but it does not seem to us that the issue of whether an action was done secretly is a proper index of its criminality. There will be questions as to what "secretly" means. Is a person abusing his position secretly only if the person on whose behalf he is acting knows nothing about what he is doing or is it sufficient that they do not know certain aspects of what he is doing? For example, let us assume that the amendment is passed and ask whether the person who abuses his position is to act against the financial interests of another person. Might he escape liability by arguing that his conduct was not done secretly because he took no positive steps to conceal his behaviour? That might be the case—sadly, it might be a common case—if he held a position in which he was responsible for the care of an elderly person who did not understand how he was abusing that position. He perhaps might not have understood if more disclosure had been made.
	There could also be difficult cases where someone within a company abuses his position to make secret profits. Is he doing it secretly within the meaning of the amendment if his immediate boss knows what is happening but the company directors or someone in between does not? The amendment would open up such a line of defence, which we believe would be undesirable.
	The Law Commission states that if the conduct is disclosed to the victim, it cannot properly be described as fraud. We agree that in the vast majority of fraud cases there will be an element of secrecy. But in our view, the question of whether there has been an abuse and whether the defendant has been dishonest will give the court a better mechanism for ensuring justice than requiring it to be satisfied that the abuse of position was undertaken secretly. I would ask: what better answer could there be to a charge of having acted dishonestly if the defendant is able to show that he made a full disclosure to the person whose position he is alleged to abuse? I use the word "position" in a sense different from that in Clause 4.
	The dishonest requirement, the abuse of position, should be sufficient elements to constitute a crime of fraud without, in the Government's view, adding this additional requirement of secrecy which could cause difficulty in certain cases. In conclusion, we are sure that in many cases the fact of secrecy will be an element in the case. It does not need to be stated in order to make it so. If it is fully disclosed, this will not be dishonest, but one can imagine circumstances where without being able to satisfy the requirement of secrecy an abuse of position has taken place. I invite the noble Lord in particular to have regard to the position of the elderly person in care who may well not fully understand what is going on, even if it is disclosed. I invite him to consider that and not to press the amendment.

Lord Kingsland: I am grateful to the noble and learned Lord. He spoke of the difficulty in defining secrecy, but later in his response asked: what better defence for the defendant to advance than an explanation of full disclosure? What would be wrong with putting that on the face of the Bill and not just leaving it for the jury to draw appropriate conclusions? If in the view of the noble and learned Lord full disclosure is sufficient to guarantee acquittal, surely that ought to appear on the face of the Bill.

Lord Goldsmith: The noble Lord makes my point for me. I stand by what I said: that in many cases saying, "I made full disclosure so how can you possibly say that I was being dishonest?", would be a powerful and convincing answer. But what about someone who says that he made partial disclosure? Is the noble Lord to say that by saying full disclosure should be a defence, partial disclosure means that you have been dishonest? I would say not. It might be a factor to be taken into account—it may well be—but, as we all know, there is partial disclosure and there is partial disclosure. These are all the circumstances from which triers of fact, juries or judges, are able to see whether the conduct is inadvertent, innocent or dishonest. I answer the noble Lord in that way.

Lord Kingsland: The more the noble and learned Lord talks, the more helpful he is becoming. I am most grateful. In those circumstances, I will take the amendment away and reflect on whether to bring it back on Report. In the mean time, I beg leave to withdraw it.

Amendment, by leave, withdrawn.
	[Amendment No. 16 not moved.]
	Clause 4 agreed to.
	Clause 5 ["Gain" and "loss"]:

Lord Kingsland: moved Amendment No. 17:
	Page 2, line 32, after "action" insert ", confidential information"

Lord Kingsland: This is a full-blown probing amendment about the topic of confidential information. Information, particularly confidential information, is often a valuable commodity, and is sometimes treated by the law as a kind of property, but its peculiar characteristics make it difficult to regard it as property in the strict sense. It has been held that a dishonest obtaining of confidential information is not theft. We would like to probe the Government's thinking on not including it in the Bill.
	I do not often cite the CPS in support of any proposition I make in these circumstances, but it stated that,
	"the opportunity should be taken to extend the meaning to include confidential information and intangibles".
	I beg to move.

Lord Goldsmith: The definition of property in Clause 5 follows the existing definition of "property" in the Theft Act 1968. Under that Act it is established law that the mere taking of information does not give rise to a charge of theft. We would think it highly desirable that the definitions of "property" for the purposes of "theft" and "fraud" should be the same. That is a powerful consideration. I would expect the noble Lord to agree.
	As the noble Lord rightly says, the question of extending the definition to include "confidential information" was raised in consultations on the Bill. In our response we said that we did not think that such a change was "appropriate or necessary". I want to explain a little why that would be so, while drawing attention for the record to paragraph 31 of our response. A person who commits a fraud is not interested in obtaining information for its own sake. He obtains credit card details, for example, with a view to financial gain. If his only intention lies in obtaining the information then fraud is not the right charge.
	Anyone who has in his possession information, such as credit card details, for use in a fraud, having obtained that information in whatever way, would commit an offence under Clause 6. That provides for an offence if a person has in his possession an article,
	"for use in the course of or in connection with any fraud".
	The process by which he obtained that information—in this example credit card details—might be subject to other charges under Clauses 2 to 4, but only if he has the intent to make an economic gain.
	Therefore, we do not think that the law of fraud should go so far as the amendment proposes. The Law Commission said, and we agree, that,
	"fraud is essentially an economic crime and we do not think that the offence should extend to conduct which has no financial dimension".
	So, if there is no intent to make a gain or cause a loss of property, but only of information, then this behaviour needs to prosecuted, if at all, in another context.
	That of course is not to say that Parliament does not believe that information should in certain specific circumstances be protected. The Computer Misuse Act 1990 would apply if information is obtained by unauthorised access to computers. Certain forms of intellectual property are protected by specific criminal offences: copyright by Section 107 of the Copyright, Designs and Patents Act 1988 and trade marks by Section 92 of the Trade Marks Act 1994. In the field of designs and patents, the only relevant offences relate to interference in the procedures for registering. This is a complex area, as the noble Lord will know, and the Government do not think that the offence of fraud should spread out across it in the way that would happen if this amendment were agreed.
	I hope that that is of some help in explaining our position. I invite the noble Lord to withdraw his amendment.

Lord Goodhart: Suppose the information is, for example, trade secrets, and the person who has got hold of the trade secret intends not to take away anything else that could be regarded as the property of the victim, but to make a profit for himself—which may of course lead to the victim making a smaller profit because he now has a competitor which he did not have before? The same would apply if what is taken away is a list of customers. In that case, it is difficult to see how any of the other provisions in this Bill could catch that particular conduct, but is it not something that ought to be caught? Existing law would not help, unless what is taken away is something in the nature of information that is already protected by, for example, patent law.

Lord Goldsmith: I will have to give some thought to the specific example the noble Lord gives. Some immediate responses occur to me. Sometimes trade secrets are acquired by an employee or someone else who may be abusing his position, although that may well not be a helpful response to that example. I need to give some consideration to what the existing other protection is.
	I began my response to the amendment by making a point about the desirability of keeping the law of fraud and the law of theft aligned on this topic. That may remain an important consideration. That said, I understand the importance of ensuring that people in certain circumstances are protected, perhaps by the criminal law as well as they would be by the civil law. However, I cannot give a better answer to how one would deal with that specific example without some further consideration, which I will give to it after today.

Lord Kingsland: I thank the noble and learned Lord the Attorney-General for his reply. This was a probing amendment. I am entirely satisfied with the noble and learned Lord's response. I can see the force of his argument about consistency in relation to theft and fraud; and I also accept that there are a range of other measures that can catch the problems to which confidential information gives rise. In those circumstances, I will not be bringing these amendments back on Report. I beg leave to withdraw.

Amendment, by leave, withdrawn.
	Clause 5 agreed to.

Lord Goodhart: moved Amendment No. 18:
	After Clause 5, insert the following new clause—
	"ABOLITION OF OFFENCE OF CONSPIRACY TO DEFRAUD
	The common law offence of conspiracy to defraud is abolished."

Lord Goodhart: In speaking to Amendment No. 18, I will speak to the other amendments in this group: Amendments Nos. 32 to 34, 37 to 40, 43 and 44, all of which are purely consequential on this amendment.
	Amendment No. 18 raises probably the most controversial single issue in this Bill. It is a simple amendment, which abolishes the common-law offence of conspiracy to defraud, and does so more or less in those words. The Law Commission strongly recommended the abolition of this offence. Conspiracy to defraud is an offence which, among other things, makes it criminal for two people to agree to do something that it would not be unlawful for one person to do on their own. That seems to be not just an anomaly but an absurdity.
	The Law Commission's report says, at paragraph 3.5:
	"Either conspiracy to defraud is too wide in its scope (in that it captures agreements that are rightly not criminal) or the statutory offences are too narrow (in that they fail to catch certain conduct which should be criminal)—or, which is our view, that the problem is a combination of the two. On any view, the present system is anomalous and has no place in a coherent criminal law".
	In paragraph 9.4 of its report, the Law Commission comes back to the issue, and points out that there is a wide range of dishonesty, potentially criminal in common law as conspiracy to defraud, but not within the new offences it recommends. It continues:
	"We accept that there may be a good case for imposing criminal liability in the case of some of these activities where, apart from conspiracy to defraud, no such liability currently exists. As far as we know, however, conspiracy to defraud is very rarely used in this kind of case. If it is thought that certain torts, breaches of contract or equitable wrong should be criminal, legislation can be framed with reference to the particular kinds of conduct involved. To retain conspiracy to defraud on the ground that it might occasionally prove useful in such a case would in our view be an excess of caution. Since it is not practicable to identify all such cases in advance, it would mean that we could never be in a position to abolish conspiracy to defraud—unless we were willing to replace it with a general dishonesty offence, an option that we rejected in part V above. The advantages of abolishing, in our view, greatly outweigh any possible advantage that might accrue from retaining it alongside the new offences we recommend. We believe that those offences cover enough of the ground presently covered by conspiracy to defraud to make it unnecessary to retain that offence any longer".
	I have received a helpful letter from the noble and learned Lord the Attorney-General setting out the Government's reasons for retaining conspiracy to defraud. It refers to the views of the Fraud Advisory Panel, which takes the view that abolition would make it difficult to prosecute the largest and most serious cases of fraud.
	As I said on Second Reading, that is making the tail of procedure wag the dog of substantive law. I recognise that a number of submissions were made in response to the Government consultation that argued in favour of retention of the common law offence, but it is fair to say that they mostly came from groups such as the Fraud Advisory Panel, to which one might respond, "Well, they would say that, wouldn't they?". A considerable number of submissions leant the other way.
	The new fraud offences are wider and less technical than the old ones and should make the process of trying fraud cases considerably simpler. The noble and learned Lord's letter refers to some technical difficulty with the law of statutory conspiracy—for example, conspiracy to commit a statutory offence—that will not be abolished by the amendment. That should be solved by the further report on which the Law Commission is working.
	The Government have stated that their aim is to abolish the common law offence in the long term. They want to wait to see how the simplified fraud offences work in practice. Although I agree with the Law Commission that it would be best to abolish them, I see some force in the Government's argument. However, if, as I hope, the new offences are found to work well, I want the Government to be able to abolish common law conspiracy, not to have to wait for a new legislative slot. The best way to do that may well be to write the amendments into the Bill. The Government will then have the power to decide when the new clause and consequential amendments come into force. The Government could defer that date until it is apparent that there is no longer need for the catch-all offence.
	In response to the consultation, the Government did not like that idea, but it seems sensible because, among other things, it removes the need for new primary legislation. The Attorney-General's letter sets out an example of a case where it would be appropriate to charge people with conspiracy to defraud rather than with statutory fraud. The example given is plainly fraudulent and would be a crime if carried out by an individual.
	That shows the defects in criminal procedure that make it impossible to link different elements of that one fraud into a single charge. Even if it is too soon to abolish the common law offence altogether, it should at least be possible to remove the worst anomaly by providing that conspiracy to defraud should not extend to activities that, if carried out by one person, would not constitute a criminal offence. I beg to move.

Lord Lloyd of Berwick: I support the amendment for all the reasons given by the noble Lord, Lord Goodhart. I am sorry not to have been able to support for any of the amendments proposed by the noble Lord, Lord Kingsland, this afternoon. The reason is simple: this is a very good Bill indeed and there is only one major flaw in it, which is covered by the amendment moved by the noble Lord, Lord Goodhart.
	I am afraid I was unable to attend the open meeting held by the noble and learned Lord. I apologised for my inability to attend. I have, of course, read his letter, to which he has already referred, with great interest. I must say, however, that I do not find the reasons it gives convincing. I have paid particular attention to the list of those who supported the retention of the offence of conspiracy to defraud, apart from the CPS and the FSO. We all knew that they would support it. Their arguments were very effectively dealt with by the Law Commission in paragraphs 5.23 and 5.24 of the report.
	What of the other bodies that support the retention of the offence? There is the Fraud Advisory Panel, to which the noble and learned Lord referred, at the bottom of page one; something called the British Retail Consortium on page two; the Mobile Industry Crime Action Forum on page three, and a few others. One only has to look at that list, and compare it with the list of those who gave evidence in answer to the consultation paper as set out on pages 102 and 103, to see that the vast weight of the evidence must have been in favour of abolishing conspiracy to defraud.
	In particular, I am interested in the views of all the judges and QCs who have hands-on experience of how conspiracy to defraud works. Those are set out on page 102. I find it difficult to believe that none of those recommended the abolition of conspiracy to defraud, although it is said in the letter that all those judges who expressed views favoured retention. But there it is.
	In any event, wherever the weight lies—as I say, it seems to lie in favour of abolishing conspiracy to defraud—that is clearly the view to which the commission came. It expressed its view in forthright terms, in the paragraphs to which the noble Lord, Lord Goodhart, has already referred. Of course, there are practical reasons why the CPS likes to charge people with conspiracy to defraud in complex fraud cases. Everybody knows that. But that does not deal with the point of principle stated by the Law Commission—the blot on our law which conspiracy to defraud represents.
	Then it is said in the letter that only 1,000 of the 15,000 cases of fraud were charged as conspiracy to defraud in 2003. I am not sure how that helps the argument either way. In any event, the relevant question is surely how many of those 1,000 could now be dealt with under the new substantive offences. If, as I suspect, the great majority could be dealt with under the new offences, then surely that is an overwhelming argument in favour of abolishing conspiracy to defraud now.
	There are always arguments for delaying decisions. All too often, it is a weak way out. We should abolish conspiracy to defraud now. We could always delay bringing the abolition into force for a year or two to see how things work out, as suggested by the noble Lord, Lord Goodhart. Unless we do at least that, however, at some stage I shall want to vote in favour of this amendment as it stands.

Lord Kingsland: Perhaps I can say to the noble and learned Lord, Lord Lloyd, who felt unable to support any of my amendments, that the vast majority of them were probing amendments. He will have noted that, following the Attorney-General's response, I have usually expressed myself to be entirely satisfied and withdrawn the amendment. Outright hostilities have been entered into on only one, or perhaps two occasions.
	The difference between me and the noble and learned Lord, Lord Lloyd, is that he has exaggerated those differences. I have just glanced at my Second Reading speech, when I said:
	"We, as my noble friend Lady Anelay has said, support this Bill and congratulate the Government on bringing it forward".
	I went on to say:
	"However, it contains one major flaw; that is, the continuation of the offence of conspiracy to defraud".—[Official Report, 22/6/05; col. 1670.]
	The noble and learned Lord, Lord Lloyd, and I are very close on these matters.
	I devoted my entire Second Reading speech to the question of conspiracy to defraud, and I apologise to the Committee that I have not tabled an amendment to that effect. I had thought that I had done so; but when I saw the Marshalled List I realised that I had not. I am lucky to be able to lean on the noble Lord, Lord Goodhart.
	In response to my Second Reading speech, the Attorney-General kindly wrote to me. He pointed out first of all that the balance of consultation responses was not quite as thin in support of the Government's position as I had supposed. I entirely accept that more organisations than I had thought wrote in to support retaining the offence of conspiracy to defraud. At the same time, the analysis made by the noble and learned Lord, Lord Lloyd, of the contrasting responses is accurate. Those who responded to the consultation in wanting to eliminate the offence of conspiracy to defraud were not as close to the day-to-day prosecution of the offence as those on the other side.
	I have a question to ask the Attorney-General about some statistics in his letter. At the bottom of page 3, the letter states:
	"In 2003, 14,928 defendants were proceeded against in England and Wales for crimes of fraud; 1018 of these were for the common law crime of conspiracy to defraud. That means that fewer than 7% of all defendants in fraud cases are prosecuted under common law conspiracy to defraud".
	I wonder how many of those 14,928 defendants were single defendants. In those circumstances conspiracy to defraud would be an inappropriate count, in which case, the 7 per cent would perhaps be higher. I have no idea what the figure is; but I should have thought it relevant to look at conspiracy to defraud only in cases when it could be a count. It may be that those 14,928 defendants were all defendants in cases when conspiracy to defraud could have been used but was not—I am just not sure.
	The noble Lord, Lord Goodhart, rightly drew to the attention of the noble and learned Lord the Attorney-General paragraph 9.4 of the Law Commission's report. The Law Commission freely admits that dishonestly failing to fulfil a contractual obligation and dishonestly infringing a legal right are two sets of circumstances not covered by the new definition and therefore would still be capable of being dealt with by conspiracy to defraud. But the noble Lord, Lord Goodhart, went on to quote from the report:
	"We accept that there may be a good case for imposing criminal liability in the case of some of these activities where, apart from conspiracy to defraud, no such liability currently exists. As far as we know, however, conspiracy to defraud is very rarely used in this kind of case".
	Is that not a very good suggestion? To the extent that the Government are concerned about those two categories, there is no reason why they should not receive specific attention in the Bill which would remove the need for conspiracy to defraud beyond peradventure.
	The real problem is that there will be a temptation for the prosecutor to use conspiracy to defraud, even though the other offences are open to him, because in some cases it is an easier way of both representing the case in court and adding an enormous amount of flexibility in the way the case is put by the prosecution.
	That surely is the danger. Throughout the Law Commission's report, the theme of removing conspiracy to defraud is linked with the fundamental concept of legal uncertainty. It is surely right that a defendant should know as much as possible about the actus reus of the offence. But under conspiracy to defraud, a great deal of the actus reus can be dreamt up as the case is developed. Indeed, it is well known that the degree of participation by everyone in a conspiracy to defraud can be of a very varied weight and magnitude, yet nevertheless each individual will be caught. How much better to rely on the new definitions set out in the Bill.
	The noble and learned Lord, Lord Lloyd, and the noble Lord, Lord Goodhart, have suggested, as an alternative to removing conspiracy to defraud from the Bill now, an alternative whereby the Government would leave it on the face of the Bill but agree after a period to remove it, on the assumption that it is indeed otiose. Can the noble and learned Lord help us here? If conspiracy to defraud were left on the Bill, what instructions would the noble and learned Lord give to the CPS about its approach to the use of the offence in future indictments in relation to the new main offence? Would he say, for example, that it should be used only in circumstances where it was absolutely clear that the alleged offence could not fall under any one of the three new clauses? That is because it would be highly undesirable if conspiracy to defraud was still used as an overlapping category in a prosecution. That would defeat the whole purpose of the Bill. It would undermine all the work done by the Law Commission.

Lord Thomas of Gresford: Perhaps I may pick up on a point made a moment ago by the noble Lord, Lord Kingsland, about uncertainty. The issue about conspiracy to defraud in the common law is that it is vague. If the defence asks for particulars, it will be given either a vague account of what is alleged, or alternatively something rather like an insurance policy, a response which covers all eventualities. Either way it means that the trial is extended because much more ground needs to be covered.
	I should have thought that that goes directly contrary to the recently stated policy of both the Government and the judiciary to try to confine trials involving fraud within a smaller compass; issues which can be dealt with in six months at the most. The virtues of this Bill—which we have all sung both at Second Reading and, to a lesser extent, today—are that it builds a framework around the law of fraud. Within that framework it is possible to set out goals to be achieved by the prosecution within the sort of compass I have just mentioned. To retain the broad common law offence of conspiracy to defraud is to leave things in the worst possible state.
	At times I have tried unsuccessfully to limit the scope of a conspiracy offence to the opening of prosecuting counsel, but I have not necessarily been successful in that effort. In one particular case that I recall, I considered that the ground had shifted over the course of a four-month trial, and that at the end I was being accused of something I was not being accused of at the beginning. That is the sort of problem which can be derived from the common law offence.

Lord Goldsmith: Of course I anticipated that this would be the lively debate of the evening. In my long letter to the noble Lords, Lord Kingsland and Lord Thomas, and copied to other noble Lords who participated in the earlier debate, I set out a detailed explanation of some of the considerations which have influenced the Government. The noble and learned Lord, Lord Lloyd of Berwick, was also kind enough to refer to the open meeting I held at which prosecutors were present precisely so that some of the points raised by noble Lords could be put and responded to directly by those who do have frontline experience. Of course I make no complaint that many noble Lords were unable to attend the meeting, but it was an opportunity to test the real concerns about abolition. In the event, I am sorry that noble Lords did not take it up.
	Let me emphasise the two strands of my response. First, although the Law Commission did include proposals to repeal the common law offence of conspiracy to defraud, during last year's consultations it became quite clear that many respondents—indeed, the weight of the responses—were against its abolition on the grounds that the common law provides the flexibility to cope with a wide range of offences that cannot be replicated by the new offences. Experience has shown that conspiracy to defraud is particularly useful in managing the largest and most complex cases of fraud. Such cases can often involve several offences, multiple offenders and a series of activities spanning a number of years. In such instances, the charge of conspiracy to defraud can provide the court with the full story of the case and the criminality involved in a way that no other available offence can do. I want to return to that, and to the weight of respondents, particularly in the light of what has been said about those who do not support repeal.
	Secondly, I want to recognise two aspects of the effect of maintaining conspiracy to defraud. As was pointed out by the noble Lord, Lord Kingsland, the Law Commission noted that the new offences cannot replace conspiracy to defraud in every case. There will be forms of behaviour that merit prosecution—that was stated by the Law Commission in the passage to which the noble Lord drew attention—but which would not be considered criminal, other than under conspiracy to defraud. I remind noble Lords that the commission stated that it accepted that there may be a good case for imposing criminal liability in the case of some of these activities. It did not believe that the new offences being created cover the whole ground.
	The second aspect is the particular difficulty with the offence of statutory conspiracy as it stands because of limitations in that area of the law that I mentioned at Second Reading. The noble Lord, Lord Goodhart, made reference to that. I shall illustrate by giving an example. The law of statutory conspiracy requires a degree of knowledge of the substantive offence that is to be committed. That means that it is difficult to use against persons who are ignorant of the details of the fraud. They may be well aware that they are part of a fraudulent conspiracy, but if they do not know the conspiracy that is to be perpetrated, they may not be guilty of statutory conspiracy.
	Statutory conspiracy also requires that the parties to the conspiracy intend that the substantive offence be perpetrated by one or more of the conspirators to that conspiracy. That creates obvious difficulties in cases where the final offence is committed by someone outside the conspiracy.
	In order to illustrate this, I draw attention to the example set out in the annex to my letter of 15 July. I wanted it to be set out in writing, because it is difficult to grasp orally. The essence is this. A standard, large-scale credit card scam will involve a number of people and a number of steps. Credit card numbers are dishonestly obtained. Somebody dishonestly gains access to legitimate credit card balance checking services and selects individual cardholders with sufficient credit available. Somebody conducts biographical research to get information about the cardholders, sufficient to be able to impersonate them. Somebody takes over the accounts, impersonating the account holders, changing the billing address and obtaining duplicate cards. Somebody produces counterfeit identity documents that are then used to rent accommodation addresses and Internet "office space", and to open bank accounts. Then someone uses the accounts to purchase expensive goods that are delivered to the accommodation addresses.
	If every person involved in each stage had agreed to perpetrate the whole of the fraud, then it may well be possible to charge them all with a statutory conspiracy. But if in reality—it is, I am told, not uncommon—some of them are involved only in some stages, people conspiring together to get the card numbers from abroad could not be charged with the statutory conspiracy which extends beyond the limited part in which they have been involved because of the limitations on the law of statutory conspiracy.
	As a consequence, the court might then be faced with a series of smaller cases just dealing with a part of the overall conspiracy so that it would not see the full extent of the criminality or the fraud involved. It would risk not having a complete picture of the fraud and accepting answers of innocent behaviour which, when one saw the entire conduct, were not justified.
	The second part of this, illustrated by the same example, are the practical difficulties which can arise unless conspiracy to defraud can be used. Using that same example, it may be possible to charge the individuals—six, seven, eight, 10, or whatever—with their individual participation in the overall fraud. But if they are charged with different offences, the court is likely to order that they should be tried separately and the cases separated out. As a consequence, the court will not see the full criminality involved and will not see the full picture.
	On the other hand, to be able to prosecute as a conspiracy to defraud, the indictment could consist of one precise, clear, short count. To some extent I answer the noble Lord, Lord Thomas, by quoting what such an indictment could say, which is clear and precise and tells the defendants exactly what it is alleged they have done. It would allege that the defendants,
	"conspired together and with others to defraud banks, credit card providers and their customers by . . . obtaining personal banking details . . . dishonestly using such information to effect changes of billing addresses . . . dishonestly obtaining goods and services . . . exposing banks to a liability to compensate account holders in the sums withdrawn".
	The indictment can reflect the full extent of the criminal conduct in a way that prosecuting only the underlying statutory offences would not.
	Against that background, I turn to where the support for retaining the common law offence of conspiracy to defraud comes from. I cannot tell the Committee who responded in what way to the Law Commission because I do not have that information. The Law Commission, as the noble and learned Lord, Lord Lloyd, indicates rightly, set out at the end of its report those who had responded to the consultation. However, we do not know, with those few exceptions where the comments are referred to in the body of the report, who said what about this.

Lord Lloyd of Berwick: Is it not obvious from the substance of the report that the Law Commission was following the views of the great majority of people set out on pages 102 and 103, including the many judges and practitioners in this part of the law?

Lord Goldsmith: I am not sure I understand why the noble and learned Lord says that the Law Commission was following the views of the majority. The Law Commission, as it should, formed its view in the light of the consultations it received, but it may well have rejected arguments that were put forward.
	We know who responded to the Government's consultation and what the response was. That is surely better than trying to draw some inference from the Law Commission report when we do not know what individual people said. A wide range of persons, not only the prosecuting authorities, put to the Government the strong view that the common law offence should be retained.
	Let me say something about the views of the prosecutors. The noble Lord, Lord Kingsland, and I crossed swords about this last time, but in a very good-natured way. They are in the front line; it is their responsibility to deal with these offences. It is important to have regard to the views of the front-line prosecutors who, in the public interest, have to deal with these offences for the benefit of us all.
	But it was not only those prosecutors, the Crown Prosecution Service and the Serious Fraud Office who opposed repeal. The Association of Chief Police Officers, representing 44 forces, and the Rose committee—which, as the noble and learned Lord, Lord Lloyd of Berwick, will be well aware, consists of senior Appeal Court judges presided over, as its name indicates, by Lord Justice Rose, one of the most experienced criminal judges in the whole of the judiciary—strongly opposed the repeal of the common law offence of conspiracy. That fact in itself ought to give one considerable pause for thought before saying that we can sweep aside the objections of those who thought it was not appropriate to retain the offence.
	The repeal was opposed by the Fraud Advisory Panel, the membership of which extends to law enforcement, financial institutions, law and accountancy professions, industry associations, government agencies, regulatory authorities, government and academia. I have here extracts from a number of the responses which were submitted. I am happy to make it available to noble Lords who would find it helpful.
	The Fraud Advisory Panel, with a large and widely experienced membership, stated:
	"The offence of conspiracy to defraud is a vital weapon in the armoury of the prosecuting authorities, and the Panel urges the government to retain it".
	It went on to give many examples. It stated:
	"One classic case occurs where doorstep salesmen target householders in particular neighbourhoods. The nature of the goods they peddle is diverse, ranging from repaving house driveways to selling bogus lottery tickets. It is true that doorstep salesmen could be prosecuted under the new fraud offence . . . but the shape of the prosecution would be unwieldy and very problematic. Typically, in this case, there will be thousands of victims. The prospect of an indictment alleging 20 counts with the balance of 980 counts to be held over for trial by a Judge under the new multiple offending provisions is an unhappy one"—
	for a number of reasons. Those reasons are then set out.

Lord Lloyd of Berwick: Perhaps the noble and learned Lord the Attorney-General would return for one moment to the issue of the Rose committee, to which he obviously attaches great importance. As I understand it, the committee did not submit a written memorandum. Is there a minute of what was said?

Lord Goldsmith: I am assured by those who attended the meeting, in the presence of the present Lord Chief Justice, the noble and learned Lord, Lord Woolf, that they were clear about their views. I shall ensure that I can present to the noble and learned Lord a record of that opposition. I do not have a written statement. I have raised this question specifically because I attach great importance to it. I attach importance to anything that the Rose committee comments upon, and I attach importance to its views on this.
	Let me identify one or two other comments. I hope that noble Lords will see the wisdom of what is said. The Law Society supported retention, as did the Confederation of British Industry, the NHS Counter Fraud and Security Management Service, the British Bankers' Association, the Local Authorities Co-ordinators of Regulatory Services, and the Association for Payment Clearing Services. The British Retail Consortium stated:
	"We feel it would be useful to retain conspiracy to defraud to ensure that new frauds, developed through new business methods, IT developments or other circumstances, which may not fall within the new act, could still be prosecuted and to act as a longstop should legal judgements make any of the proposed offences ineffective".

Lord Goodhart: If these submissions are so persuasive, why is it that the Government look with favour on the idea of removing the offence in the longer term?

Lord Goldsmith: The Government have accepted the logic of the argument that one would want to move towards a position where everything was covered and where the practical conditions that I have identified had been met. That is stated in the Government's response. But we are nowhere near that position at the moment. I have met two different arguments this evening. The first is for immediate repeal, which I respectfully but firmly would reject as an irresponsible approach given what is said. I do not say that in any critical sense, but in the sense that it would be irresponsible of the Government to repeal it now in the light of the fact that judges, prosecutors and people engaged in this industry have said that it could be an important way of protecting the public. The second argument, put forward by the noble Lord, Lord Goodhart, and, to some extent, by noble and learned Lord, Lord Lloyd, at Second Reading, was that we should look forward to a position where that could take place.
	Before I conclude on that aspect, I shall quote one or two more submissions that may be of assistance to your Lordships. The North of England Trading Standards Group stated—and your Lordships may think this shows great wisdom:
	"In the past the Theft Acts 1968 and 1978 were hailed as major breakthroughs in controlling fraud but the passage of time subsequently exposed inadequacies in both. We may encounter the same experience with the new fraud law and it is strongly suggested that a more responsible course would be to leave conspiracy to defraud as effective law whilst awaiting the ramifications of Court interpretations of the legislation. When we have experienced the results of High Court decisions on the new law we will be better equipped to assess the value or otherwise of repealing conspiracy to defraud".
	As I have said, I have a number of other representations. Given that I have referred to the Law Society, I should quote from its submission. It states:
	"The offence should not be abolished until there has been time for a complete review of the law of dishonesty by the Law Commission and the Government".
	I referred to the Association for Payment Clearing Services. It stated:
	"APACS has serious concerns about repealing the current conspiracy to defraud offence . . . The banking industry is concerned that repeal of the conspiracy to defraud offence would limit the scope for prosecuting all the parties involved in such cases. In our view, defence counsel would seek to compartmentalise defendants' cases, which could be seen by the jury as isolated specific offences of fraud, when in fact the conspiracy is the crucial element".
	I have taken some time to deal with those responses because I wanted noble Lords to have a flavour of what the Government received when they asked this very important question.
	If one looks to the future, what needs to be seen before one could be confident that one could responsibly repeal common law conspiracy to defraud? On page 103 of its report, the Law Commission, having referred in footnote 15 to certain practical considerations, stated that this issue is more appropriately dealt with in the context of its work on assisting and encouraging crime prevention generally rather than as a problem peculiar to fraud. In other words, it recognised that work is still to be done in relation to the element of participation before one can form a judgment. I referred to this at Second Reading.
	We need to know whether the multiple offending provisions in the Domestic Violence, Crime and Victims Act 2004 work. We do not know whether they will work. We hope that they will, but we do not know. We certainly do not know how the substantive offences introduced by the Fraud Bill will be interpreted by the courts. We do not know whether we will succeed in implementing Section 43 of the Criminal Justice Act and, if we do, what its consequence will be. We do not yet know what the impact of the Lord Chief Justice's protocol on managing heavy fraud cases is going to be. We do not know any of the changes that might follow the Law Commission's forthcoming report on participation in crimes. There is a lot to be done before the backdrop would be settled. The Government's clear view is that, without being certain about those matters, it would be irresponsible to abolish the common law conspiracy to defraud, particularly in the light of the strong and well reasoned arguments put forward by so many well placed respondents. Our approach would be to reassess the position once there has been an opportunity to consider the operation of the new fraud offences in light of the changing backdrop.
	I shall ensure that the continuing need for the retention of the common law offence is addressed in the Home Office review of the operation of the Fraud Act, and the Government commit to review the operation of the Act three years after its implementation. That is to be found in the regulatory impact assessment. So there is a commitment already to look at that—and a very good reason why one could not be in a position to deal with it now.
	I need to respond to some points that have been made. The noble and learned Lord, Lord Lloyd, attached importance to the weight that he believed was in favour of abolition. I have sought to respond to that by pointing out the weight that was thrown against abolition in the consultation.
	The noble Lord, Lord Kingsland, asked me about the statistics in the letter that I wrote. I cannot break them down any further than they are at the moment; my interpretation is that there were 14,000 or so defendants, of whom only just over 1,000 were proceeded against for common law conspiracy to defraud. I do not read from that that the others could have been proceeded against in that way; I interpret it as meaning that generally they were crimes of fraud. I have a little difficulty following the noble Lord's mathematics, and that may be my fault, but it is a small proportion and there is no reason to believe that it will grow. If anything, there is every reason to believe that it may dwindle if the substantive offences work as they are intended to.

Lord Kingsland: My point was that there were just over 1,000 cases in which the count of conspiracy to defraud was used. It would clearly have been an inappropriate count in many of the 14,000 cases, because there would only have been a single defendant. I was questioning whether the 7 per cent really meant anything in those circumstances.

Lord Goldsmith: I do not know whether it would or would not have been appropriate in the other cases. I interpret the 1,000 as being defendants, and a number of those will have been charged with other defendants in the conspiracy. It does not inevitably have to happen that way, but I cannot give the noble Lord any further information in that regard.
	I turn finally to the point made by the noble Lord, Lord Goodhart, who understands the case—if I may presume—for retaining the offence for the time being, recognises that there is much to be done and to be seen before one could be safe in removing the offence, but proposes that we should repeal now but leave the Government to commence the provision at some future date. As the noble Lord rightly noted, we do not regard that as the right way forward; we ought to be sure that we have created the conditions for repeal of common law conspiracy before we put the repeal on the statute books. That will take some time—and I have identified the other areas. Indeed, there is some learning on how desirable it is to take powers which it is not intended to implement, or the implementation of which is uncertain.
	Let me reassure the noble Lord on one point. He feared for us that if we did not take the opportunity now, we might not have the appropriate legislative vehicle. I assure the noble Lord that there will be no doubt that the Home Office, which is behind this Bill, will have the appropriate legislative vehicles to which such a provision can be attached at some stage in future. On that I believe all noble Lords can agree.
	I have spent a long time dealing with this matter, and I hope that noble Lords will forgive me, but it is a very important topic. The Government strongly take the view that it would not be right to repeal the offence. We understand the well expressed comments that noble Lords have made, but I hope that noble Lords accept that it would not be right to repeal the offence now. Having said what I have done about the review in three years' time, I am very happy to consider, if noble Lords would think it helpful for me to do so, what further I could say about that and about how that review would take place. I ask that the amendment should be withdrawn.

Lord Thomas of Gresford: I very much regret that my absence abroad prevented me attending the meeting to which the noble and learned Lord the Attorney-General referred or, indeed, knowing about it. Nor did I have an opportunity to read his letter until a moment ago. I am interested in the,
	"one precise, clear and short count"
	that is mentioned in the annex to the letter. Obviously it is good to see one precise clear and short count, but one should not think that that means there will be a precise, clear and short trial. It just means that trials will go on and on and on. That is my first point.
	My second point is that you can have a situation—I tried to refer to it earlier—whereby, say, eight people are charged in the conspiracy with obtaining personal banking details, another three with dishonestly using such information to effect change of billing address and so on. The prosecution has the task of setting out what the allegation against an individual is—what he is facing. My complaint is that within this type of count it is possible by the end of the trial for the original allegation to have disappeared, but for a person to be convicted on a different basis—that he dishonestly obtained goods and services—an allegation which was not put at the opening of the case against that particular individual. There is, first, the practical problem of how to confine trials like this into some shorter compass and, secondly, the unfairness to a particular accused who can find the ground shifting as the trial goes on.

Lord Goldsmith: I hope that I shall not weary the Committee by responding to that. There are two points. First, we do not consider that the concept of conspiracy to defraud is too uncertain. I believe that was what the noble Lord was suggesting in his earlier remarks. It is defined. The elements of the offence are clearly set out in the case law, including in Scott v Metropolitan Police Commissioner. I refer to four elements. First, the accused agreed with at least one other to embark upon a course of conduct. Secondly, at the time the agreement was formed the accused intended to act in accordance with the agreement. Thirdly, the course of conduct which the conspirators agreed and intended to embark upon deprived the pleaded victims of something which was theirs or of something to which they would or might be entitled but for the fraud, or such interests were put at risk; and, fourthly, the accused knew or believed that he had no right to put those interests at risk.
	The ingredients are there. It is possible to draft a precise and short count in the course of a particular trial, notwithstanding the Lord Chief Justice's protocol, and notwithstanding case management which the Government very strongly support, so that the nature of offences are well defined before the case—something which the prosecution would welcome as much as the defence. In those circumstances I hope that the particular problem to which the noble Lord, Lord Thomas, refers will not arise. I suggest that that is not a consequence of retaining conspiracy to defraud; it is a consequence of the fact that at the moment we do not manage long trials well enough.

Lord Goodhart: I am very grateful to the noble and learned Lord the Attorney-General for that extremely full and extremely clear exposition of the Government's position on this. I certainly understand what their position is. However, we have debated this matter now for virtually an hour. It certainly would not be appropriate for me to try to respond to what the noble and learned Lord has said because to do so would to a very large extent be to repeat what I said in moving Amendment No. 18 and in speaking to the amendments that are grouped with it.
	I should like to make some brief points. It is not so much that I would positively welcome the suggestion that the Government could allow on to the face of the Bill the abolition of common law conspiracy to defraud but defer its implementation, but that I recognise its inevitability, because the commencement clause in the Bill, as in virtually every other Bill, leaves it up to the Government when to bring it in and provides powers to bring in some parts and not others.
	The Attorney-General mentioned that there was some law on this matter. I recollect a judicial review a few years ago when it was held that it was not appropriate for a Minister simply to decide that a provision in the Bill would never be brought into force, without referring it back to Parliament. But that decision would not prevent a government from taking the view that a provision should not be brought into force for some time while the effect of the other provisions of the Act were considered.
	This is an important issue. While we have had a full debate, it is almost inevitably a matter which we will wish to bring back for further consideration on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 6 [Possession etc. of articles for use in frauds]:

Lord Geddes: Before calling Amendment No. 19 I must advise the Committee that if it is agreed to, I cannot call Amendments Nos. 20 to 23 due to pre-emption.

Lord Kingsland: moved Amendment No. 19:
	Page 2, line 38, leave out subsection (1) and insert—
	"(1) A person is guilty of an offence if, without lawful excuse, he has in his possession an article intending it to be used in connection with any fraud by him or by another."

Lord Kingsland: This, again, is a probing amendment and I shall be brief. Although this clause was not present in the Law Commission's draft Bill, we welcome it, in principle, because it extends the offence of going equipped to cheat to items found at the offender's home. However, as currently drafted, the clause is too wide. Our amendments introduce elements that would ensure that the clause was narrower in its scope by suggesting that items have to be used in connection with a fraud, adapted for use in connection with a fraud, or that a person intends to use in connection with a fraud. In that way, the clause would be properly targeted and clearly understandable. I beg to move.

Lord Thomas of Gresford: Perhaps I may speak briefly to Amendment No. 20 in this group. I hope that the Government will have no difficulty in accepting it. The thrust of the Bill, as we have discussed, is to make dishonesty an element of fraud. However, Clause 6 leaves it open for a person to be guilty of an offence if he has,
	"under his control any article for use in the course of or in connection with any fraud",
	without knowing about it. An element of mens rea could simply be inserted into the clause—hence the word, "knowingly"—that would avoid any possible doubt at any future stage.

Lord Goldsmith: Clause 6 makes it an offence for a person to possess or have under his control any article,
	"for use in the course of or in connection with any fraud".
	I shall return to the words "for use in" because they are important. It follows the wording of Section 25 of the Theft Act 1968, which makes it an offence for a person to go equipped to commit a burglary, theft or cheat.
	The amendments would all limit in some way or another the ambit of the clause. Let me start with the amendments which would limit the possession of articles to those that have been made or adapted specifically for use in committing fraud. Many of the articles used in fraud are not made or adapted for that purpose. For example, a credit card reader has legitimate uses, but it can be used without any adaptation to gather credit card details illicitly. Another example, which one suspects happens more frequently than one knows, arose under Section 25 of the Theft Act 1968. A hotel waiter was convicted of possessing six bottles of wine of a type not stocked in the hotel which he intended to sell for his own profit. Clearly, the wine was not made or adapted for use in a fraud—at least, one strongly suspects that it was not—but plainly that was exactly what the waiter was about to do. There may well be other wine of the kind in a car boot sale which the noble Lord, Lord Goodhart, was worried about. However, even an entirely innocent article such as a bottle of wine can be demonstrably produced in a fraud. We would therefore resist limitation to things that are used or adapted specifically for fraud.
	We would also suggest that it is highly undesirable to restrict the clause to articles for use in the course of committing fraud and excluding articles for use in connection with fraud. Let me give again the example of the credit card reader. That would be used to gather credit card details illicitly. It is not the reader that is being used in the course of the fraud but the details which are then gathered and subsequently used. The reader would be used only in connection with the fraud. Therefore, to capture that important example, the words need to be as broad as they are.
	Then it is suggested that there should be a requirement that the possessor of an article for use in fraud should intend to use it in a fraud. I return to my credit card reader example. The person who possesses it may be gathering credit card details illicitly, but have no intention of contributing to the actual fraud. It does not matter that the defendant does not intend to use the article himself; it is enough to prove that he intends it to be used by someone else. This amendment would prevent that.
	I turn to the final point, which relates to the amendments intended to touch on the state of mind of the defendant. On lawful excuse, there is no exemption in Section 25 of the Theft Act for persons who have a lawful excuse. That has posed no problems because case law has established that Section 25 requires proof that the defendant had the article for the purpose or with the intention that it be used in the course of or in connection with, in that case, the cheat. I invite attention to the decision of the Court of Appeal in Ellames, 60 Criminal Appeal Reports 7, where the court said that the words in that section—
	"has with him any article for use"—
	meant has with him for that purpose or with the intention that they will be used. Therefore, the requirement which the noble Lord, Lord Thomas, wants to see imported—that there should be an intention—is caught by the words "for use". I say that it catches the intention of the noble Lord, Lord Thomas, because, plainly, if something is with you for use in that sense, you must know that you have it. It is not therefore necessary to include the word "knowingly".
	We think it is desirable to use the same language as Section 25 because that will then catch the case law that already exists. For those reasons, I hope that I have shown noble Lords that the offence is because of those words, more narrowly and properly drawn than perhaps they suspected and that none of the amendments that they have put forward would actually improve the Bill.

Lord Kingsland: Once again I am most grateful to the noble and learned Lord. In essence, he seems to be saying that the expression "for use" which is on the face of the Bill, really should allay most of the concerns that I have expressed in the context of the case law that has defined it.
	I am most grateful to the noble and learned Lord for his response. I shall go away and look at it and if I am as convinced as he is I shall not reappear with the amendment at Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendments Nos. 20 to 23 not moved.]
	Clause 6 agreed to.
	Clauses 7 to 10 agreed to.

Baroness Anelay of St Johns: moved Amendment No. 24:
	After Clause 10, insert the following new clause—
	"CONSPIRACY BETWEEN HUSBAND AND WIFE TO DEFRAUD
	After section 5(2) of the Criminal Law Act 1977 (c. 45) (abolitions, savings, transitional provisions, consequential amendments and repeals) insert—
	"(2A) A person may be guilty of the common law offence of conspiracy to defraud if the only other person with whom he agrees to conspire is his spouse or civil partner.""

Baroness Anelay of St Johns: Amendment No. 24 is on a matter to which I referred briefly at Second Reading. It would abolish the exemption given to married couples and civil partners in Section 2(2)(a) of the Criminal Law Act 1977. The consequence of that section is that at the moment if a husband and wife or, indeed, civil partners are the only persons who can aspire together to commit a fraud they cannot thereby be convicted because the activity in which they are engaged does not constitute an offence. They must first conspire with somebody else before that activity becomes an offence.
	Prior to the Criminal Law Act 1997, conspiracy was a common law offence. That Act replaced common law conspiracy with a statutory offence. Two common law conspiracies were preserved; namely, conspiracy to defraud and conspiracy to do acts tending to corrupt public morals or outrage public decency. Many of the old common law rules and concepts remain in being, albeit restated in statutory form. Under one such rule, with which I am concerned today, a husband and wife are not guilty of conspiracy if they alone are parties to the agreement.
	The offence of conspiracy is complete only once an agreement between two or more persons has been made to commit an offence. The agreement of course does not have to be put into effect; and the fraud does not actually have to be carried out. So, I direct my attention to Section 2(2)(a) of the Criminal Law Act because that is where the common law rule exists that a husband and wife are not guilty of conspiracy if they alone are parties to the agreement.
	I have concerns about this issue. I was perhaps a little flippant at Second Reading in the way I introduced it. It is a matter about which I have serious concerns. The Bill is the only way at the moment that I have to raise the matter and amend the law in respect to conspiracy to defraud. I appreciate that other conspiracy offences would not be within the scope of the Bill.
	The rule as it stands causes real problems. If a jury is not satisfied that there was another party to the conspiracy to defraud, it has to be directed to acquit the husband and wife or, indeed, in future, civil partners. Can that really be right in the 21st century? As I have said before, it harks back to an age where a wife was considered to be the husband's chattel and was not able to make a separate stand-alone decision in her own right. It seems extraordinary that that same concept appears to have been transferred into a very modern Act that enshrines civil partnerships as being legal in this country.
	When the Civil Partnerships Act went through I wondered whether somebody had been given the task of trawling through statute law and, wherever husband and wife might be referred to, adding civil partners as an amendment. It seems to me that by adding "civil partners" to this provision, what was already a bad loophole that needed to be closed has merely been extended.
	When I raised the matter briefly at Second Reading on 22 June, the noble and learned Lord the Attorney-General stated at col. 1673 that—and I paraphrase—the Law Commission was going to be looking at the law of conspiracy more generally as part of a codification project. That was going to be next year, it hoped. The noble and learned Lord made the generous offer that at the very least he would let the Law Commission know what I had said on that occasion.
	I hope the noble and learned Lord will understand something of my impatience and slight scepticism about whether anything might be done, or at least done as soon as I would hope. Of course I welcome any work by the Law Commission on this, as on other matters. I consider its work an invaluable resource, particularly to me as a layman, as it puts its work in language that I can readily understand.
	However, if it is the case that the Law Commission merely hopes to issue a consultation paper next year, I wonder what the timetable might be for any potential reform. There is then no guarantee that any recommendation it may make will be put into effect. I gently remind the noble and learned Lord that that was the subject of our last debate on the matter.
	In that debate, the noble and learned Lord was hoping to reassure the House by saying that there were other matters that could be taken into consideration to see how fraud prosecutions would pan out. He referred to matters such as multiple offending provisions and the Lord Chief Justice's protocol by saying "Let's see what happens". He offered a review of conspiracy to defraud in three years' time. I do not find that too reassuring for the narrow point that I make here.
	The noble and learned Lord gave some encouragement by saying there might be other opportunities to amend law in future Home Office Bills. As Home Office spokesman on these Benches, I look forward to six more Home Office Bills from October. My goodness me, I was hoping the Home Office might take a breath in the year after that. I am giving him the opportunity here of a vehicle to put the law right easily with regard to this narrow point by closing a loophole.
	I look forward to the noble and learned Lord's response. My noble friend has been able to say how helpful he has been. I hope I will be able to say the same. I beg to move.

Lord Goodhart: I am glad that the noble Baroness, Lady Anelay, has, after three hours, had an opportunity to take part in this debate. What is more, what she has said makes a great deal of sense. If, contrary to our wishes, the concept of the common law offence of conspiracy to defraud is to be retained, I can see no obvious justification for retaining the wholly archaic rule that a husband and wife cannot, for these purposes, conspire together—or the less archaic rule that civil partners cannot conspire together, given that civil partners have not yet come into existence. They will do so with this extraordinary exclusion from conspiracy to defraud.

Lord Thomas of Gresford: I was surprised to hear the noble Baroness suggest that the rule derives from a time when the wife was regarded as the chattel of the husband. I thought the theory was that man and wife were one flesh and that, in order to preserve the sanctity and privacy of marriage, matters of this sort were not gone into, just as one spouse was not a compellable witness against the other. I do not think it is a feminist issue at all, but I am interested to hear the response of the noble and learned Lord.

Lord Goldsmith: The noble Baroness, Lady Anelay, was certainly not flippant on the last occasion. She has raised what I think everyone would agree is an important point.
	On the historical basis for this situation, the noble Lord, Lord Thomas of Gresford, may be closer to the mark than the noble Baroness. It goes back to the days when man and wife were regarded as a unity, and unities could not conspire with themselves. Although in my researches today I was not able to prove this to my own satisfaction, I suspect that it may well be connected with the rules that the noble Lord also refers to, about the availability, compellability and competence of one spouse to give evidence against the other.
	Having said all that, as the noble Baroness detected from Second Reading, I have much sympathy with what she said. The problem is that this is not really the vehicle by which to do it. There are two reasons for that. The first is that her amendment deals only with conspiracy to defraud, the common law offence, therefore not dealing even with statutory conspiracies to commit fraud. I suppose that one might deal with that. Secondly, as she rightly said, one could not deal with the other areas of conspiracy because they are outside the scope of the Act. Although she may regard the present position as anomalous, she might regard it as equally unsatisfactory and anomalous to abolish the rule for some conspiracies but not others.
	So she understandably asked what are the prospects for the matter to be considered. Following Second Reading, it has been suggested to the Law Commission that it consider the matter as part of its review of the law of conspiracy. My information tells me that its consultation paper should be published early next year. That is for it to decide, not the Government. If, after today, I can give any greater precision on that, I will. I undertake to write to her and hope that I may be able to obtain for her some greater assurance—although, again, it is a matter for the commission—that it will consider the matter then.
	I was certainly not referring to that matter within the three-year timescale, which is more appropriate to the overall review of the Act that we have undertaken to hold. That may take the matter a little further for the noble Baroness, and at least enough for tonight.

Baroness Anelay of St Johns: I said that I hoped to be able to thank the noble and learned Lord, and I do for a crumb of comfort. I am grateful for his offering to lend his best efforts to encourage—even if it is not possible for him to persuade—the Law Commission. It is rightly firmly independent and ought always to remain so. I am glad that his voice will be added to mine in hoping that it will address the matter.
	I am grateful to the noble Lord, Lord Goodhart, for his support; and for the teasing of the noble Lord, Lord Thomas of Gresford. If I had been accused of being a feminist 40 years ago, I would have been surprised; not now. Age does not wither one, it makes one even more determined to try to make changes that are fit for purpose. I am sure that marriage would survive the abolition of this rule. I am happy to accept that his historical perspective may be more accurate than mine. As the noble and learned Lord the Attorney-General said, there is always the issue of compellability. We went through that when we discussed the Domestic Violence, Crime and Victims Act 2004 in the previous Session.
	However, when considering conspiracy to defraud, one is increasingly considering a paper trail, an audit of activity, especially in the IT age. Some of the difficulties in proving conspiracy to defraud where a husband and wife have been acting together may not be as burdensome to the prosecution in future—at least I hope so. I accept what the noble and learned Lord said about the fact that my amendment focuses on just one part of conspiracy to defraud. I recognise that that is a defect.
	On the other hand, he is also right to recognise that I am impatient and would have preferred to make at least some small advance to nibble away at what is defective in the law. I appreciate that the Bill is not an appropriate context and I will not bring the matter back on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 11 [Obtaining services dishonestly]:

Lord Kingsland: moved Amendment No. 25:
	Page 4, line 30, at end insert ", and
	( ) if the service provider is ignorant of the defendant's conduct and has not consented to it"

Lord Kingsland: I can be very brief. The amendment was suggested to me by Liberty. It would add a paragraph (c) to Clause 11(1). Liberty takes the view, and I agree, that this is a common sense amendment. Surely it should not be a crime if service providers are aware and have consented. I beg to move.

Lord Goldsmith: I can respond, I hope, equally briefly. Surely the person will not be found guilty of the offence, because he cannot possibly have acted dishonestly in those circumstances. It is therefore unnecessary to add this requirement.
	It also has the disadvantage that, if one puts something in, it gives an additional element for the prosecution to have to prove, rather than, as one would think more appropriate, the defendant saying "I was not dishonest; look at the proof of that. My goodness me, they actually knew exactly what I was doing and that I had consented to it". End, one would think, of case; whether that is also end of amendment, I know not.

Lord Kingsland: I think so. The noble and learned Lord has accepted the sense of the amendment. He thinks it is unnecessary to put it on the face of the Bill. In those circumstances, I shall not trouble him with it on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 11 agreed to.

Lord Kingsland: moved Amendment No. 26:
	After Clause 11, insert the following new clause—
	"ABOLITION OF OFFENCE OF CHEATING THE PUBLIC REVENUE
	The common law offence of cheating the public revenue is abolished."

Lord Kingsland: The Minister may think that this amendment is definitely out of area. I came upon it because I had the privilege of meeting Professor Ormerod of Leeds University, who is now the learned editor of the great textbook, Criminal Law by Smith and Hogan.
	Professor Ormerod is also a great expert on the offence of cheating the public revenue. I was discussing the issue of conspiracy to defraud with him, and he said "If you think conspiracy to defraud is an ill-defined offence, what about the offence of cheating the Revenue?".
	That offence is even wider than conspiracy to defraud, and is committed whenever a person dishonestly does anything to the pecuniary disadvantage of the king, by act or omission. It is an offence of very long standing.
	If the Minister is not tempted by our submissions on conspiracy to defraud, he may feel better disposed towards the suggestion that lies behind this amendment. I beg to move.

Lord Goldsmith: This was an issue that the Law Commission quite specifically excluded from its review. It says at the beginning of its report that there are certain specialist branches of fraud that, in its view, required separate consideration. Among those it included tax evasion offences, and there is a footnote which I am assured makes it clear that these include the common law offence of cheating the Revenue.
	If there is evidence of a problem—and I have not heard these remarks from the learned professor to whom the noble Lord refers—then it is going to require a separate review. It has simply not been looked at. As it is, however, I am not at all convinced that there is any problem. This is an offence which has been prosecuted for many years. In fact, it is an essential part of the Revenue's toolkit—now HMRC and, of course, the Revenue and Customs Prosecutions Office, the new prosecuting authority.
	If anyone thought that it was analogous to conspiracy to defraud, contrary to what the noble Lord has said, the criticism cannot be made of cheating the public revenue that it creates an offence which is not an offence for one person to do, but is for two to do. I understood that to be a particular point. It does not arise in that area.
	The noble Lord may be familiar with the case of Pattni and others in 2000, in which the question of the certainty of the offence for the purposes of the European Convention on Human Rights was looked at. The judge in that case rejected the criticism that the offence was too uncertain.
	It may be that if the Bill is enacted the use of the offence of cheating the public revenue will decline. As it stands, the offence is regularly used by prosecutors for the Inland Revenue, or HMRC as it is now, to deal with cases of tax evasion. I am sure that we all want to ensure that HMRC continues to have all the tools necessary to prevent others not meeting their fiscal obligations.
	I resist the amendment and invite the noble Lord to withdraw it.

Lord Kingsland: I shall of course withdraw the amendment in its present form, but I may return to the issue on Report. I entirely accept that the Law Commission excluded it from its consideration; but it may be an appropriate moment for the Government to reflect further on the way in which the offence is at least defined. It would be helpful to have more debate on the subject. I shall reflect on it over the summer.

Lord Goldsmith: Before the noble Lord withdraws the amendment, and if he is seriously considering bringing it back, I invite him to consider that it has not been subject to any review by the Law Commission. There has been no consultation whatever. Notwithstanding that, if he thinks that the issue requires consideration on Report, may we please have discussions before then, otherwise the risk of a Division on such an important issue without pre-consideration other than that on Report would be worrying?

Lord Kingsland: I have a certain amount of material on the issue, which I shall make available to the noble and learned Lord. I should be only too happy to discuss the matter over the summer break. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clauses 12 and 13 agreed to.

Lord Bassam of Brighton: I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.
	House resumed.
	House adjourned at thirteen minutes before ten o'clock.